Why you should not miss attending AGMs... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Why you should not miss attending AGMs... 

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In this issue:
» Why IMF keeps over estimating growth...
» New monetary policy framework on the anvil
» Has policy paralysis come to an end in India?
» Is the RBI responsible for hedging losses of companies?
» ...and more!


00:00
 
Annual General Meeting (AGM) is an exercise which helps connect management and shareholders. It is an annual event whereby company's financial disclosures are made public. It is also a platform which gives shareholders an opportunity to question the management over its performance.

However, AGMs have become more of a funfair these days. They seem to be a drag or rather a mere formality to comply with. Gone are the days when investors used to throng AGMs to listen to the management and indulged in a constructive dialogue.

These days the discussion agenda has moved to frivolous topics. As an example, we attended one AGM few days back in Kolkata and were amused by the kind of questions that were asked. One shareholder asked why there was no board behind the management dais stating the details/agenda of the AGM. Some shareholders asked for gifts that management should give them for attending the AGM! Not so brave ones chirped in from behind suggesting options like hand bag, pens, etc. Few questioned on the layout of the financial tables in the annual report rather than the numbers.

To be quite honest we were dumbstruck. Not to mention the absence of decorum at the place. It was more like a fish market. We felt the shareholders wasted an opportunity to communicate with the management on constructive matters. Instead, they indulged in petty aspects which carried no relevance. And in the process were the biggest losers.

Remember, management has no incentive in holding any AGM. They do so more from a regulatory perspective. So, it is your duty as a shareholder to grab this opportunity with both your hands and question management on the right areas. AGM is a platform to get management access and should be used wisely. Being a responsible shareholder you should come prepared with a list of questions. And not worry about petty things like which snacks are on offer or what banners to put up.

Voting is another area where investors should exercise due diligence. How many times have you as a shareholder disapproved a company resolution at the AGM? The general tendency is to go with the decisions taken by the management.

Though increasing shareholder activism these days has changed investor perspective, further awareness needs to be created in this area. Do remember that you as a shareholder have a say in company's decision making as much as the management. Hence, shareholders should take an informed decision in voting matters. And also put in the right questions to management at AGMs. This shall help in ensuring that the management does not take minority shareholders for a ride.

Do you attend AGMs of companies that you own? If yes, on which topics do you question management? Let us know your comments or share your views in the Equitymaster Club.

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02:15
 
If you needed proof of why it's futile predicting macroeconomic outcomes, here's another one. And it comes from none other than the economic think tank of repute, the International Monetary Fund (IMF). As per Businessweek, IMF has yet again revised its global growth outlook, this time for the year 2015. It has confessed that it had been more optimistic than needed. It put down the reason for change to bad guesses on the growth in the so called BRIC group of countries. Besides, four troubled economies in the Middle East also accounted for another sizeable portion of the error.

The IMF now expects global growth to reach 3.3 percent in 2014 and 3.8 percent in 2015. This is down from the estimates it made in April and then in July. Important to add that between 2011 and 2014, the average miss on the year ahead forecast was around 0.6%. We are actually surprised the error is not on the higher side. It nevertheless highlights how investing based on macroeconomic projections can be a pretty futile exercise. The only two things that therefore matter is the long term business fundamentals and the valuations we pay for a stock.

02:40  Chart of the day
 
If recent economic indicators are anything to go by, a recovery in Indian economy seems to be happening. The country is finally shedding inertia as far as infrastructure investment is concerned. While key reforms are yet to be implemented, the business confidence has gone up with the rise of pro-growth Modi government at the Centre. And this confidence has got strong roots it seems.

As we all know, in the preceding slowdown, a lot of projects were stalled for the lack of proper policies, delays, bureaucratic hassles and other such issues. However, things are improving on this front. As per the CMIE statistics, around 36 projects have been revived in the September quarter. This is the highest number since last 11 quarters. Some of the key sectors witnessing this revival are chemicals, metals and petroleum products.

While the data lends some credence to the recovery story, it is yet to get support of the banking credit growth. One must note that the latter has recently hit the lowest level in the last five years. While revival in projects is a positive development, we are yet to find out if is a sustainable trend and not just a dead cat bounce.

Has policy paralysis come to an end?


03:05
 
For the last few years, India has been facing the growth versus inflation dilemma. The monetary tool that the RBI uses to stabilize the economy is the interest rate. Low interest rates tend to boost borrowings and hence economic growth. But this can also further exacerbate the inflation problem and hit savers very hard. If you rewind back to the time when P Chidambaram was the Finance Minister, it seemed like the finance ministry was at loggerheads with the RBI on the interest rate front. The government clearly wanted interest rates to be lowered so that economic growth could be revived. But the RBI was determined to keep inflation control as its primary focus.

Now it seems we are in for a new monetary framework where the government will play a key role in monetary policy management. Under the new framework, the government will set the retail inflation target. Meeting that target would be the RBI's job. A monetary policy committee would decide the interest rate to ensure that inflation remains within the targeted levels.

This new monetary policy framework is expected to be put in place by end of this year. The finance ministry and RBI are soon expected to ink a formal agreement. Will it help contain inflation and revive growth at the same time? Let's wait and watch.

03:45
 
Since a few years, the standard question that we asked to most export-heavy companies is how they are hedging their currency risk. Of late the standard reply that we get is there is no defined hedging policy. As per an article in Economic Times, the hedging costs are currently 10% of borrowing cost for a top-rated company. This nearly erodes the cost advantage that it gets from borrowing overseas.

This has forced many to abandon hedging in a climate of calm. The RBI's constant intervention in the forward market to keep the currency rates in control has also impacted hedging costs. While this may be good for the economy, companies exposing themselves to currency risk are threading the danger line. Hence investors have to be very watchful of this risk. Too much currency volatility in future could erode the bottom line of even the most stable companies.

04:25
 
In the meanwhile, the Indian stock markets slipped deeper in the red in the post noon trading session. At the time of writing, BSE-Sensex was trading lower by 47 points (0.2%). Majority of the sectoral indices were trading in green led by energy and engineering stocks. IT and pharma stocks are witnessing maximum selling pressure. Most of the Asian stock markets were trading in the red with Japan and Indonesia being the biggest losers. European markets have also opened the day on a negative note.

04:50  Today's investing mantra
"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." - Warren Buffett
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7 Responses to "Why you should not miss attending AGMs..."

ramchandra varma

Oct 12, 2014

in my whole stock market tenure i have attended only one AGM of Ranbaxy Laboratories Ltd. Just 17 years back.Full of rush no place for sitting.There was no possibility to interact with management.Then on wards I had not got any opportunity to attend any company AGM.

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RK77

Oct 9, 2014

I have attended only one AGM in my whole life as an investor. The second one that I almost attended but did not seemed more like a mad house with investors fighting for sweet / lunch boxes that were being offloaded from trucks. I saw that in the parking lot and decided not to join the melee and returned home.

You are right that it is an opportunity for investors to meet the management but in todays web and media world one keeps hearing them all the time. PR managers and media manages ensure that the audience is taking for a ride by smooth talks and truth only emerges when it is too late - Satyam is an example. Bajaj, Infosys and Tata mgmts are exceptions and one would like to hear them but they are all located far away from Delhi. ETNow and BloombergTV show excerpts of AGMs of important companies.

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Austin

Oct 9, 2014

In India share holders are not serious about AGMs and most of them even do not know about their role in AGMs.Hence a systematic awareness campaign at various forums with regard to the role of shareholders in AGMs and the possible questions they are supposed to raise in AGMs need to be organized. Here Equitymaster must play an important role in creating healthy awareness among its members.

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sanjay dessai

Oct 8, 2014

If promoters are holding more then 51 percent stake in company , i think retail investor have no say in AGM or voting. i have personally seen this in AGM. Also proxy votes pays major role in decision making

Like (1)

jal mahimwala

Oct 8, 2014

Have been to several AGMs of blue-chip companies and have now stopped going. For one, people come there to have snacks and want freebies. Secondly, after the MD or the Chairman's speech, the same old faces come to the podium,just to project themselves and give long irrelevant speeches, rather than ask pointed questions relating to the functioning and future of the company. It's so long drawn out that one leaves in disgust. If I wanted to be ask a question would probably have to wait till 7 or 7.30 pm, when the meeting starts at 3 pm. Fruitless exercise.

Like (1)

rohan

Oct 8, 2014

Market Share inIndustry, Future Plans & Propesctus , Cost of Ligitation has increased , ROCE, Dividend pay out ratio etc

Like (1)

raj kumar gupta

Oct 8, 2014

we does not attend the AGM, as generally AGM are kept in metro cities and it is not possible for the outstation shareholders to incur expenditure to attend the meeting.

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