I was staying at a friend’s house at a small hill station three hours away from Mumbai. The hill station had a few hundred houses and was perched on top of the mountain with only semi-paved roads. What surprised me was that despite how rural this place was, my friend had super-fast broadband Wi-Fi. When I probed further, I discovered that BSNL had recently set up a line in the area despite having fewer than a hundred customers.
As stock market investors, we tend to blame the inefficiency of public enterprises, but at that moment, I realised how vital BSNL’s role was in connecting India. Just like this small hill station, there may be thousands of smaller towns and villages where it makes little commercial sense to build out a Wi-Fi network - but our state enterprises (PSUs) are the ones who have the loss-taking capacity to do what’s right for the country.
Just like BSNL, investors also tend to continuously blame PSU banks. They tend to stick to HDFC, ICICI and the like for wealth creation - but the actual heroes are the state banks leading financial inclusion in the country. The reason why most Indians have a bank account and can make & accept payments and get access to banking services is due to the geographical spread of state-owned banks in all parts of the country.
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It’s right to say that private companies favour profit over everything else. However, state-backed companies (PSUs) have nation-building as an agenda too.
Importance of infrastructure, power and oil and gas
Like PSUs, stock market investors dislike infrastructure, oil and gas and utility companies. These industries tend to be cyclical (non-consistent financial performance), so investors tend to stay away from them.
However - the recent Russia-Ukraine war highlights how important these industries are for our basic needs. For example, European countries had to limit electricity usage recently. They shut down factories due to energy shortages, showing how critical energy-related industries are for basic needs.
Infrastructure companies building roads and flyovers are also generally overlooked by equity investors but are required for long-term economic progress. Cities like Bengaluru, Mumbai and others are good examples where a lack of good infrastructure has led to low productivity and a slowdown in growth.
Investor-friendly companies cannot survive without investor-unfriendly companies
The investor-friendly companies (eg pharma, IT/Tech, startups, consumption and manufacturing) prosper by relying on the strong foundation laid by good quality infrastructure, energy and financial inclusion. For example, your Ola ride to work this morning is possible due to road infrastructure, gas supply, phone network and efficient payment mechanisms.
Without these, no company would be able to do business in India. But, unfortunately, these ‘boring’ industries have done such a good job that we tend to forget their importance in our daily lives and take them for granted (except maybe roads and infrastructure).
As a nation, we must support and encourage industries that seem dull but are crucial towards India’s long-term prosperity. So next time you travel to a rural location - where there is super-fast 5G, Wi-Fi, 24x7 electricity or a new highway - remember that a ‘boring’ industry or a PSU company is probably responsible for it.
(The author is president, Passive Funds, Motilal Oswal AMC & CEO of Glide Invest)