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Controversial stocks beaten in 2011
Mon, 2 Jan Pre-Open

Stocks of companies from different big corporate groups such as Anil Dhirubhai Ambani Group (ADAG), Unitech, Essar, Adani and Jindal witnessed deep value erosions during the year 2011. Indian stock markets performed badly as well during this period. The benchmark index BSE-Sensex witnessed a wearing down of around 24% in its value. Most of the heavyweights had similar fate during the year. Hence the question arises. What was so special about the share price declines in the above mentioned group companies? After all, these companies too had to bear the brunt of bleak business environment and low investor sentiments.

The answer lies in the quantum of value erosion of these group companies. Most of them are now left with just half of their market values as compared to the start of the year 2011. In some cases, value destruction was as high as 70%. This gives an indication that it was not just the business environment which led to this kind of underperformance of these companies vis-a-vis benchmark index performance.

How did some controversial group companies fare in 2011?
Company Name Business Group/ Promoter Change* (%)
Adani Enterprises Ltd. Adani Group -55%
Adani Power Ltd. Adani Group -52%
Essar Oil Ltd. Essar Group -64%
Essar Ports Ltd. Essar Group -53%
Jindal Saw Ltd. OP Jindal Group -29%
Jindal South West Holdings Ltd. OP Jindal Group -73%
Jindal Stainless Ltd. OP Jindal Group -33%
Jindal Steel and Power Ltd. OP Jindal Group -36%
JSW Energy Ltd. OP Jindal Group -62%
JSW Steel Ltd. OP Jindal Group -57%
Reliance Broadcast Network Ltd. ADAG Group -40%
Reliance Capital Ltd. ADAG Group -65%
Reliance Communications Ltd. ADAG Group -52%
Reliance Infrastructure Ltd ADAG Group -60%
Reliance Mediaworks Ltd. ADAG Group -70%
Reliance Power Ltd ADAG Group -55%
Unitech Ltd. Unitech Group -71%
Reliance Industries Ltd. Mukesh Ambani -35%
Reliance Industrial Infrastructure Ltd. Mukesh Ambani -60%
*Year-on-year returns

Read again the name of the above mentioned groups. And you can easily find out that there is one thing common in all of them. All were clouded with some kind of controversy during the year. Some of them are facing the charges in 2G scam. Some of them are named in the illegal mining cases. Besides these groups, the year witnessed Reliance Industries Ltd. (RIL), the most valued company of Indian stock markets, facing the charges on corporate governance issues. The stock of RIL too remained under pressure throughout the year.

Overall, it was a bad year for many heavyweights, not just on account of unfavourable business environment. Rather, controversies such as corruption charges and corporate governance issues played a bigger role for them. Charges against these companies are sub judice, meaning under judicial deliberation. Therefore, it would be too early to comment on the management quality and integrity of these companies.

However, all this once again emphasises the importance of corporate governance and management quality while selecting a company for a long term investment purpose. No doubt, financials are important parameters for judging a company. However, investors would do well if they start looking beyond numbers and pay attention to other issues such as management quality and corporate governance.

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Feb 20, 2018 (Close)