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Family businesses lead the way for wealth creation in India

By Katie Barker

A new research report by India-based Ask Investment Managers shows family-owned businesses accounted for 61% of the market capitalisation of India’s top 500 companies.

The study, based on data from financial data provider Capita Line, also shows family-owned businesses grew faster over an eight year period when compared with multi-national corporations and public sector companies. Operating profits at family businesses grew just under 30% between 2001-2009, while those at multi-national corporations grew by just over 15%. 

The Ask Investment Managers report said the reasons for this include the longer-term view taken by family businesses, the alignment of interest between the business and the family as the family have capital tied up in the business, and the dynamic and nimble nature of company leadership. 

“FOBs' ability to have significant compounding returns over a long period of time is attributed to their dominant operations mostly in sunrise industries. This dominance further justifies their abilities in cost efficiencies," ASK CEO Sameer Kamdar said in an interview with India’s Economic Timesnewspaper. 

The study also associated family businesses very heavily with entrepreneurialism, suggesting family businesses in India are viewed as dynamic and innovative, an image they do not always have in Europe and North America.

But the report did highlight some areas in which Indian family businesses were still not as strong as they could be including succession planning, capital allocation issues and the tendency towards promoting family members regardless of ability.