Forbes India – August 4, 2017

50 | forbes india August 4, 2017

“Markets are about reasoning.

Machines can build Machines,

but they cannot build

hu Man beings.”

Infosys or Wipro model is probably

under threat because the businesses

underlying them are going through

change. Now the robotics and machine

learning model is disrupting the model

of headcount-driven businesses.

That is 80 percent of their business

which is not growing for them. Maybe

the India or world digitalisation

business is growing, but it doesn’t

have the size. So I think these

companies will grow at a slow pace.

In fact, the world economy is

growing at a slow pace. In the next

ten years, if the world economy

takes off, we will see growth. And

Indian companies will do well. But

traditional companies are not the

best companies to bet on. They are

great companies, but are they great

investments? They have cash. They

have dominance. They are running the

banks. Growth and annuity is there.

If we look at it from our investing

framework of quality, growth,

longevity and price, we see that

growth is missing. IT is classical value.

But we buy value plus growth (VG).

I’m running public money and if

I don’t perform, I will close shop. I

can’t take the risk of a value trap. The

base is big now. Underlying changes

are happening. But on the face of

it, we are looking at low growth.

It is a B2B business. Information

technology is a contrarian buy. My

style is not contrarian. My style is VG.

Q What are you reading now?

RA: I’m reading Eating The Big Fish

by Adam Morgan. It is about how

challenger brands can compete against

brand leaders. How do you position

yourself as a new HFC or a new AMC?

It [the book] helps us in two ways.

One is for our own company and

two, you can also find the next

multi-bagger in the market. When

someone builds a new challenger

brand, you can pick it up. Challenger

brands are expensive, but the

potential is also high and that

is what you buy. You don’t buy

performance. You buy potential.

india’sSuper 50 companies MOTILaL OSwaL

you have that ambition and drive?

MO: I normally look at qualities
that make you a good leader and a
team player. People management is
important. Is he process driven? That
is what is really important for us.

RA: When we hired Anil Sachidanand
[as MD and CEO] for our HFC
business, we must have met almost
everybody that mattered in the
HFC segment. In that process, we
learnt so much about HFCs.

MO: We have created a good cultural
environment here. We give respect to
our people and that is the reason they
last with us for a long time. We give
them ownership of the business. We
are delegating our responsibilities. We

don’t have operating responsibilities,
but we are here every morning.
We have an entrepreneurship
culture and partnership culture.
We believe in empowerment. We
gave shares of ASPIRE, our HFC, to
everybody—from those at the bottom
to the top employees of MOFSL.

RA: In 2003, we said one-third will
be the operating cost, one-third
employee cost and one-third will be
the company’s profits. So when we
grew by 100 times, our employee
cost also went up by 100 times.

Q What do you make of the
new fintech companies that are
disrupting everything in finance?
MO: We have aligned with some
fintech companies. We have met a lot

of fintechs to understand if the idea

is relevant to us. We are not looking

at investing in fintech, but acquisition

is a possibility. We have 180 people

and they work with lots of vendors

and keep us abreast about what is

happening in that space. Buffett never

invested in businesses he did not

understand. We follow the same thing.

Q How do you look at the world in

the times of Artificial Intelligence

and machine learning?

RA: Where there is no advice, the

business will go digital. If you talk

about broking, it was execution

with advice. Advice is still human.

We got hurt by the digitalisation

of execution and, in the process, it

demolished the business. In investing,

if computers can pick stocks and

invest and allocate, we are not needed.

Then the AMC business will also

become a commodity business.

MO: Innovation and ideation is

difficult to do through computers.

RA: Markets are about reasoning.

You are buying the future. Machines

can build machines, but they

cannot build human beings.

Q How do you look at the

Indian software sector? The

industry is in a spot.

RA: It went through a good phase, but

now is in trouble. In 1996, the sector

was very small. By 2000, it was $5

billion [in size]. Today that number

is $120 billion. It is still growing at

8 percent on such a high base. The