Dalal Street Punishing Companies That Are Taking Quarterly Updates Lightly

It is noteworthy that the market is often forgiving if the bad news is discounted and though the street punishes the news, these stocks generally tend to recover from the short-term reaction as long as the event is not growth path-altering.

Companies don’t realise that 'only positive' disclosures impact their governance score and street credentials. Moreover, it seems there is a lack of seriousness in the way these quarterly updates are presented and this is unfair to investors and shareholders.

Many listed companies release quarterly updates under the listing regulations as part of the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information. This window has been provided to companies to ensure there is no event volatility and any updates or challenges are adequately disclosed and thus should be discounted on the earnings day.

However, quite a few companies have been found putting out only positive updates. In other words, business risks or market challenges are rarely disclosed.

Let’s see a few examples.

IndusInd Bank released its quarterly review on October 4. The bank disclosed basic information about Net Advances and Deposit, which showed year-on-year and quarter-on-quarter growth and the CASA Ratio which showed a decline. The bank blindsided the street by not providing update on risks to its book, especially SME and NBFC-MFI exposure. The IndusInd Bank share has lost 18% since the earnings.

IDFC Bank released its update in early October. The update only spoke about growth in Loans and Advances, Customer Deposit growth, CASA deposits and CASA ratio growth. The bank missed reporting the portfolio challenges from microfinance and SME players. The stock price has fallen 8-9% in the last one month.

Avenue Supermarts, the parent of D-Mart, gave a revenue update of Rs 14,050.32 crore for the second quarter along with a trend for the July-September quarters for the last four years. The Radhakishan Damani company did not convey the commentary and the risks that Quick Delivery is posing on modern retails in the top cities it operates, and the urban slowdown. This means that the veteran investor may have to ask his company management to be more open about the commentary on performance going forward. The stock has lost nearly 9% since.

Asian Paints which earlier announced second-quarter earnings board meeting to be on October 23, re-scheduled the same on October 18 to November 9. The company could have used the opportunity to provide an update on the growth and revenue trend which surprised the street despite it announcing it over a weekend. The stock is a big loser in Monday trade.

There are a few companies that use the update opportunity better. Some of the prominent FMCG companies are not only giving performance updates but also commentary that gives investors an idea about the trends and quarterly challenges faced by the companies and industry.

Titan gave an update which warned about the solitaire segment seeing a decline amidst price uncertainty and demand-supply dynamics in the international markets. The company recovered after an initial knee-jerk reaction to the earnings. Titan maintained that it will not enter lab-grown market and hence Trent entered this market. But that is a business call, and the street can weigh in on whether it is the right move.

Infosys co-founder Narayan Murthy used to say, "‘When in doubt, disclose!". The simple but pragmatic thought has given the IT major enough clout with the investors even in the worst of times and the following the same maxim will help other corporates in the long run.