An index of the stocks of 75 most politically connected firms, or companies that have used political connections to win deals or have political affiliations, has underperformed the S&P BSE 500 index by 53% since the publication of 2G spectrum report, according to a report by Ambit Capital Pvt. Ltd. These companies did well till 2010, but have fallen on hard times since then (see chart).
While the brokerage firm said it is not allowed to make the names public, it’s no secret that the companies that have been associated with or named in the numerous scams have consistently underperformed the broader markets since the reports were published by the Comptroller and Auditor General of India.
The cosy connections between the political system and favoured crony businessmen have come under intense scrutiny in recent times and Ambit Capital believes that the age of politically connected companies may be drawing to a close.
Saurabh Mukherjea, chief executive officer of institutional equities at Ambit Capital, said, “Our political system is gradually forced to become more transparent, more accountable and less corrupt under public pressure.”
Will the underperformance of the politically connected firms continue and will it really be a goodbye to the old order? The situation is not going to miraculously become better overnight, but the good news is that we are moving in the right direction and both the political class and the business lobby are trying to grope their way towards a more transparent and less corrupt interface, added Mukherjea. The chart shows that the market reflects this entirely commendable trend, with Ambit’s index for politically connected companies down 65% from its peak in October 2010.
