In forcing automaker Maruti Suzuki India to backtrack on a controversial production deal with its Japanese parent, a group of Indian fund managers scored a rare win that heralds increased activism for an Indian fund industry long seen as timid.
Across emerging markets, shareholder activism tends to be rare, with unhappy investors typically expressing discontent by dumping their shares. In the case of Maruti, that would have meant ditching a company that sells half the passenger cars in India and is a staple of institutional portfolios.
"This particular episode has brought many of the fund managers and institutions together," said Chandresh Nigam, chief executive of Axis Asset Management, one of the seven fund firms that succeeded this month in their challenge to the deal between Maruti and Suzuki Motor Corp.
Previous attempts by investors to take on controlling shareholders in India, known as promoters, have run out of steam. Last year, Swiss cement maker Holcim Ltd's plan to consolidate holdings in two Indian cement makers stirred up investors, but proceeded after a divided opposition was unable to muster enough votes.
The revolt against Maruti was different because seven fund managers running a combined $80 billion, or more than half the assets under management in India, joined forces in an unprecedented show of cooperation.
"Normally, just a single institution acting will not work anyway. The next stage should be if we can formalize or semi-formalize a platform," Nigam said.
In India, regulators have long tried to force fund managers to be more vocal. Securities Exchange Board of India (SEBI) Chairman U.K. Sinha has criticised money managers for not complying with a 2010 requirement that funds vote at annual meetings.
Last year, India replaced a five-decade old companies law in a bid to curb the power of promoters. New rules restrict the number of board seats held by promoters and give oversight of audit and remuneration to independent directors.
"Shareholder activism has been gaining popularity in India and Maruti just cements that," said Simone Reis, co-head of M&A at law firm Nishith Desai Associates. "Just because a promoter is a bigwig doesn't mean the investors won't voice their concerns," she said.
A bigger test, however, would be taking on one of the family-run firms that predominate in corporate India including big names like Reliance Industries Ltd and Adani Enterprises Ltd, fund managers say.
Family-run firms in India often have few