Commentary: This Is Not Your Grandfather's India

Not long ago, the markets would have reeled at Reliance's troubles. No more

It could be the setup for a Bollywood epic. Two brothers feud over the future of a company founded by their father. After weeks of fighting, the board gathers for a hastily called meeting that may decide which brother prevails. Scores of journalists and hangers-on throng the gates, awaiting word of the outcome. As the meeting convenes, the elder brother is cloistered inside, but the younger -- wearing a dark suit and an even darker expression -- steps out of his silver Range Rover and laments to the crowd that he has been excluded from crucial decisions.

This is no film script. It's Reliance Industries Ltd., the $14 billion flagship of the petrochemicals, energy, and telecom group long synonymous with Indian capitalism. The brothers are Mukesh and Anil Ambani, whose battle for control of the Reliance empire has grown more bitter and more public in the past two months, engrossing India with daily charges and counter-charges of perfidy splashed across front pages. As it happens, the Dec. 27 board meeting failed to produce a reconciliation. Instead, older brother Mukesh announced that the company would spend $666 million on a share buyback to revive its stock. The shares dipped 1.3% in response.

But even as the fraternal strife continues, it has revealed something profound about India. Just two years ago trouble at such an important company would have sent the broad market into a tailspin: Reliance, after all, was a core holding for foreigners seeking an India play. Today, Bombay's financial community is paying about as much attention to Reliance as it might a Bollywood hit: It's fun to watch, but it barely moves the market. Since November, Reliance Industries shares have stalled, while the benchmark Sensitive Index has shot up 15%, to a record 6,500. Clearly, India has gone beyond Reliance. "The family feuding has been ringfenced," Christopher Wood, chief strategist for CLSA Global Emerging Markets, wrote in a recent report. "In the old days...this affair would likely have precipitated a sell-off in the whole market."

This is not your grandfather's India. It's a country of multibillion-dollar tech-outsourcing companies such as Wipro (WIT ) and Infosys (INFY ), and up-and-coming drugmakers like Ranbaxy and Dr. Reddy's (RDY ). And it's a country where, increasingly, export-quality manufacturing is taking place. Overseas institutional investors poured $8.2 billion into India in 2004. Many dumped Reliance stock after the scandal broke in November; they can plow the proceeds into a universe of Indian companies that barely existed as investment options a few years ago.

There's still plenty to be concerned about at Reliance. The biggest issue: The group has one of India's most tangled financial structures. On Dec. 14, CLSA cautioned investors about the group's "lack of transparency, board independence, and relatively lower corporate-governance rankings." The same day, Standard & Poor's (MHP ) said it might downgrade Reliance Industries if the dispute results in a "major change of business plan or the group structure." Neither Ambani brother, nor anyone else from the company, would comment on the record.

The Reliance saga may ultimately produce more than headlines. Investors are hoping it will spur regulators -- who so far have been largely silent on the matter -- to enforce reporting rules and corporate governance guidelines more vigorously. And they may more closely monitor India's family-owned companies, says Kavil Ramachandran, professor of strategy at the Indian School of Business in Hyderabad. The Ambani split could also pressure others to resolve their own issues. "I see more family businesses now acknowledging the need to have proper succession planning," he says. Reliance itself might even learn to be more transparent as it watches companies that are the hallmark of the new India prosper. Reliance learning from its rivals? That's a script India would surely love to read.

By Manjeet Kripalani

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