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Indian investors wary of 'political' stocks
Fri, 24 Jun Pre-Open

Corruption in India has been the hottest topic in recent times. And why not! There is a huge economic cost of corruption. Alas, the entire country has had to pay for the greed of nasty crooks.

But there seems to be a remarkable change as far as people's tolerance of corruption is concerned. What was earlier considered as a given is now being fought against. The movement against corruption is gaining momentum with social activists like Anna Hazare at the helm.

Different sections of people are voicing their disgust in different ways. Investors, for instance, have started avoiding 'political' stocks. What are 'political' stocks? As you may have guessed, these are stocks that either have direct political linkages or are dependent on government licenses.

According to a certain report, such 'political stocks' have underperformed the broad Indian market by a wide margin of 14% in the last one year. Among the 75 politically connected or dependent companies, 25 witnessed declines in their stock prices of about 20% between April 2010 and April 2011. During this same period, the broad market dropped only 6%. These 75 'political' stocks mainly belonged to sectors such as real estate, infrastructure, energy and telecom.

Given the fact that India has been one of the most heavily regulated economies in the world, companies with strong political connections have prospered tremendously in the past. But investors are now wary of such shady entities and are refusing to give them a premium valuation. We hope this growing awareness against corruption paves the way for higher standards of corporate governance and ethical management practices.

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1 Responses to "Indian investors wary of 'political' stocks"

Vikram Kumar

Jun 24, 2011

EM-The list of these 75 politically connected companies would make for an interesting reading. Any harm in publishing that and educating the investors?

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