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Madhu Kapparath/Mint
Madhu Kapparath/Mint

Poor disclosure practices by top companies

Only 41% of Indian firms on a public disclosure index are able to fulfil related mandatory needs

Historically, private and public listed companies in India have disclosed only as much information as is mandatory. The justification—that the provision of additional information will be of greater interest to competitors rather than investors—has often been repeated by companies. But increasing regulatory activism and international institutional investors are demanding additional disclosures from India’s 9,000-plus listed companies, in the interest of improving corporate governance and removing information asymmetries in the capital markets. Last year, the Securities and Exchange Board of India (Sebi) introduced an amended clause 49 in the equity listing agreement that demands board level oversight for “disclosure and communications", while acknowledging weak enforcement of mandatory disclosure standards.

FTI Consulting reviewed publicly available information disclosed by leading publicly listed companies in India to ascertain current practice.

Combining information parameters that are mandated by law with additional information parameters that are offered voluntarily by these companies in the interest of greater transparency, a weighted, composite disclosure scoring system was created, with six mandatory disclosure parameters and five voluntary. These were applied to the top 100 index constituents of the BSE Ltd.

Overall as a group, the BSE 100 index constituents have an average composite disclosure score of 6.7 out of 10, a reflection of low mandatory and voluntary disclosure scores.

Only a little over a fourth (27%) have composite disclosure scores of 8 or more. About half scored more than 5 but less than 8. Another one-fourth of the constituent companies scored 5 or less (a third of these are government-owned enterprises).

The six parameters in this category were: updated quarterly financial information, annual report, shareholding information, information on board and management team, investor contact and analyst transcripts.

Overall as a group, the BSE 100 index constituents have a median mandatory disclosure score of 2.5 out of 4. But over half the companies scored less than 2.5, reflecting a poor level of disclosure for basic mandated information. Only 41 of the 100 companies had a full 4/4 score. The remaining 59 fell short on either one or some of the mandatory parameters. This is a glaring gap and a telling statistic indicating the unavailability of basic information that is required by law in the Indian capital markets.

Unavailability of updated analyst transcripts and sufficient public information regarding analyst engagements was the single largest reason for low scores—51% of Indian companies are not providing analyst transcripts on their websites. This goes against the principle of fair disclosure to investors and, majority and minority shareholders irrespective of class.

The five voluntary disclosure parameters were: profit and margin improvement narrative, operating metrics, business strategy articulation, updated debt information and key corporate developments. The first two relate to business performance, while the other three were taken as proxies for quality of management and business leadership.

The median voluntary disclosure score was 3.5/6. A third of all the constituent companies had scores of 3 or less. As many as 14% scored just 1 out of 6 (six were government-owned enterprises), while only eight companies got full scores (six were banks). This, again, reflects the low priority placed on providing additional information in the interest of greater transparency by a majority of the companies. Lack of updated debt-related information was the single largest reason for the low voluntary disclosure scores—68% companies did not provide adequate information on their company websites. This was followed by inadequate information pertaining to business strategy (57%) on their websites.

The low scores demonstrate the need for a shift in strategic thinking at the board level and in the senior management of publicly-listed Indian firms.

Edited excerpts from the report “India Disclosure Index: How India’s Leading Listed Companies Fare on Mandatory & Voluntary Disclosure" by FTI Consulting Inc.

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