The Hindu Business Line : Publication of quarterly results, a must

It is with persistent demand from investors’ associations that SEBI mandated listed companies to publish quarterly results. This should be enforced, and the clamour from companies to switch back to half-yearly mode firmly ignored.

M. R. Mayya

The SEBI Chairman’s statement calling for a debate on the need for publication of quarterly earnings by listed companies, undoubtedly well-intentioned, merits a threadbare discussion about the pros and cons of the issue.

It is common knowledge that even with publication of quarterly results, insider-trading does take place.

How else can one explain the brisk movement of prices, either upward or downward, a few days before the publication of quarterly results, almost in tune with the actual results, so much so that publication of results normally has little impact on the market. There will, obviously, be a lot more insider trading if results are published on a half-yearly basis.

The ‘financial engineering’ that the SEBI Chairman alluded to will also continue, irrespective of publication of quarterly or half-yearly results, largely related to the spirit of adherence to corporate governance and ethical values of the companies. As regards the pressure on management to focus on numbers rather than on business that the SEBI Chairman also spoke about, it needs to be noted that it is the function of the Chief Financial Officer to prepare the quarterly reports, presenting a fair and correct picture of the working results, while it is the function of various other departments — production, sales and advertisement — to focus on business to produce better numbers.

Advanced market

The emphasis placed on quarterly guidance, along with quarterly results, which some of the IT companies are announcing, is rather over-stretched.

There is no guarantee that all companies will give a fair picture of quarterly guidance, as their guidance will be influenced more by the likely impact of such guidance on movement of prices, rather than on actual assessment of guidance. The Indian stock market is among the most advanced of markets, in fact, ahead of many of its counterparts in several respects, such as settlement of transactions, dematerialisation, etc., thanks mainly to the regulator’s persistent efforts to modernise the working of stock exchanges.

The Indian stock market has today become a model for global markets to emulate. Even with regard to publication of quarterly reports, we have not followed companies in the western countries.

It is with great persuasion and persistent demand from investors’ associations that SEBI mandated listed companies to publish quarterly results, solely with a view to injecting transparency in the working of companies. It needs to be noted that most of the companies do not respond to reports in newspapers about such significant happenings as takeovers, floatation of joint ventures, disposal of some segments of business, etc.

They content themselves with merely saying that it is the policy of the company neither to deny nor to confirm the authenticity of such reports. In the meantime, insider-trading does take place, to the detriment of ordinary investors.

It is also pertinent to note that the Listing Agreement requires companies to notify to the stock exchanges and to make public immediately events such as strikes, lock-outs, closure on account of power cuts, etc., both at the time of occurrence of the event and subsequently after the cessation of the event, as also of all the events having a bearing on the performance of the company and price-sensitive information.

Very few of the listed companies comply with these requirements in letter and spirit. Several of them give a truncated version, solely with a view to reducing the impact of the events on the stock prices.

Make it manadatory

It is, in fact, time now that listed companies are mandated to publish monthly figures relating to some key matters, such as production, sales, etc., as a few of the leading companies do.

The clamour for switching back to publication of half-yearly results comes from company managements and vested interests, while investors’ associations continue to insist on focusing greater insight into the working of companies.

The Preamble of the SEBI Act is aimed at the establishment of a Board, inter alia, “to protect the interests of investors in securities”.

In short, let us not dispense with the publication of quarterly reports as such a move will hurt the interests of ordinary investors.

(The author is a former Executive Director, Bombay Stock Exchange.)

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