Frauds and scams have become the order of the day in India, be it in politics or the corporate world. Their existence, unfortunately, has been so deeply ingrained in the psyche of us Indians that any eruption of a scandal has probably made us move on with life without really batting an eyelid.
But then, along came the Satyam fraud which shocked the entire nation. There were myriad reasons for this. First was obviously the scale and the scope of the fraud that left everybody breathless with disbelief. The second was the fact that it was an blue chip IT company (and among the top 4 at that) that should have committed the fraud as the top IT companies were considered the blue-eyed boys of India Inc., since they were the pioneers in putting India on the global map.
The third probably was the fact that a fraud of such proportions erupted in corporate India when scandals were actually associated with politicians. Not that such cases have not occurred in the past. In fact, they have taken place globally too (think Enron).
Whatever be the case, the Satyam scandal has shaken the confidence of investors. The auditors not doing their job properly have, in fact, been all the more appalling. After all, the outside world has no choice but to accept the 'audited' financial statements at their face value. The authenticity of the same can only be questioned by the auditors.
In such a scenario, we at Equitymaster conducted a poll to get a perspective of which our readers think are the companies whose financials are the most trustworthy. The results paint an interesting picture.
And the result...Rankings for India's most...
The corporate group, whose financials investors think are the most trustworthy, is the Tata Group with Infosys following close on its heels.
What is interesting to note is that while the stock price of the companies run by the Ambani brothers had zoomed to unjustifiable levels before the stock markets plunged, the general consensus has been that the financial disclosures of these companies (Mukesh Ambani group and Anil Ambani group) leave a lot to be desired, as they are placed at the lowest end of the rankings.
Does the Satyam scandal mean that there is considerable doubt in the financial statements of India Inc.? Not necessarily and this was reflected in the observations made in the poll. While some felt that many companies resorted to window dressing their accounts, albeit on a smaller scale, others were of the opinion that the financial statements presented are of quality and are not necessarily tainted because of the Satyam fiasco.
Interestingly, in an earlier poll that we had conducted to gauge which is the most admired corporate, the results were similar with the Tata Group bagging the honours and Infosys having to contend with the runner-up position (see above table). This itself shows that if the management quality is superior, an honest presentation of the financials is a given.
In those heady days before the meltdown, stockmarket returns were probably considered to be the prime reason to invest in stocks of certain companies. Valuations, sound financials and good quality of managements which are extremely important were not given their due consideration. The global financial crisis and the Satyam saga have changed all that. However, it is better late than never, and it is encouraging to know that that investors are getting themselves better educated on the profile of the companies, their management, business practices and long term prospects of the same. This will ensure that they garner strong returns in the long term.
India's Most Trustworthy Corporate Group: 2011 Poll | 2012 Poll