India has the third-largest number of family-run businesses in the world after the US and China, according to a report by Credit Suisse. The country has 111 family-owned business with a combined market capitalisation of $839 billion.
Indian companies owned by families generated average annual returns of 13.9 per cent since 2006, more than double the 6 per cent reported by companies that were not.
“Indian firms, on average, generated the highest absolute cash-flow return on investmen (CFROIs) across our Non-Japan Asian group. However, they generated the second-lowest absolute share price returns in 2017 and on average since 2006. The one country where the relationship between relative profitability and returns does appear to hold is China,” said the report, titled ‘The Credit Suisse Family 1000 in 2018’.
A look at the best-performing family-owned companies in Asia indicates that more than 15 of the top 30 are from India. This is nearly twice the share of Indian family-owned companies in the entire Non-Japan Asian universe, the report said.
Family companies — where founders or descendants hold at least 20 per cent in direct shares or where voting rights held by the founders or descendants is at least 20 per cent — continue to generate stronger top-line growth than their non-family peers, the report said, adding that the revenue growth premium appears relatively robust for family-run businesses across all the main regions around the world. This clearly lays down the foundation for a superior overall financial performance, which, in turn, supports strong share-price appreciation as well.
“The countries that dominate the Non-Japan Asian region are China (159 companies) and India (111). Hong Kong adds 72 companies. These three (geographies) combined comprise some 65 per cent of the Non-Japan Asian section of our database. In terms of market capitalisation, our Non-Japan Asian family-owned database is also dominated by China, India and Hong Kong,” Credit Suisse said.
“Although family-owned companies across the Asian region have a strong long-term track record of outperforming non-family-owned peers, they do not necessarily outperform all the time. For example, last year, family-owned companies in Thailand, Indonesia and Taiwan underperformed their local non-family-owned peers. Countries where family-owned companies outperformed their local peers in 2017 and so far this year are Malaysia, Singapore and India,” it added.