Top Indian companies make significant progress on disclosures and compliance in 2015: Report 23Rd June 2016

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The second study by FTI Consulting, a global business advisory firm, shows that top 100 listed Indian companies, by market capitalisation, have made significant progress on following mandatory disclosure norms and compliance in 2015. Whilst some might say this has been forced, the improvement has been impressive, it said in its report titled India Disclosure Index 2015.

As per the report, during 2015, BSE 200 companies, other than the BSE 100 constituents, taken as an aggregate, lag the aggregate BSE 100 constituents’ mandatory disclosure scores, but beat them (albeit marginally) when it comes to voluntary disclosure. "Only time will tell, if this is a more ambitious or enlightened perspective for this group, as they seek to attract investment and grow to replace constituents in the top 100 list," it added.

Overall, as a group, the BSE 100 index constituents, have an average composite disclosure score of 7.4 out of 10, a significant improvement compared to 6.7 out of 10 from 2015 primarily on the account of improved mandatory disclosure scores. 

As per the report, almost 45% have composite disclosure scores of eight or more which is up from 26% in 2015 - and includes eight companies, Axis Bank, Bharti Airtel, Federal Bank, IndusInd Bank, Infosys, Shriram Transport, Sun Pharma and  Vedanta, which stand out for achieving the maximum score of 10.

Only six companies, compared to 25 in 2015, of the BSE 100 index constituent companies have low composite disclosure scores of five or less, it added.

FTI said, the next BSE 100 or the BSE 200 without the BSE 100 companies does slightly better than the BSE 100 with an average composite disclosure score of 7.4. Six companies in this group Biocon, Cholamandalam, Jubilant Lifesciences, L&T Finance, SKS Microfinance and Welspun have a score of 10 out of 10.

Talking about mandatory disclosure scores, the report says, BSE 100 index constituents have an average score of 3.7 out of 4, much higher from the average of 3.1 out of 4 in 2015. 

"71 of the 100 companies in the BSE 100 Index had a full score for mandatory disclosure (up from 41 in 2015), with the remaining 29 falling short on either one or some of the mandatory disclosure parameters. This is a significant improvement within the last year. However, there are still close to a third who fall short of what we have considered to be full mandatory disclosure. Only three of all BSE 100 index constituent companies have mandatory disclosure scores less than 2.5 (compared to almost half in 2015), reflecting the leap by BSE 100 companies in mandatory disclosure compliance," FTI Consultancy says.

According to the report, a significant reason for improvement has been the improved individual scores regarding ‘analyst engagement information and earning call transcripts’ with 73% providing this information, which is up from 49% in 2015. A little over a quarter of the companies (27%) did not provide this information. Some of them interpreted the revised regulations to disclose details of the analysts they met but not the information they shared or exchanged, in violation of the spirit of fair disclosure and transparency that was the context of the revised regulations, it said.

The mandatory disclosure score for the next BSE 100 or BSE 200 without the BSE 100 companies was 3.4 out of 4, with the weakest performance on analyst engagement information and earning call transcripts. Only 49% of these companies disclosed this information on their corporate websites, the report added.

In voluntary disclosure scores, the BSE 100 index constituents have an average score of 3.7 out of 6, up from 3.5 out of 6 in 2015, when reviewed against seven voluntary disclosure parameters. Only eight of the 100 companies in the BSE 100 Index had a full 6 out of 6 score for voluntary disclosure, reflecting the low priority placed on providing additional information. 

Banks account for half of this group with highest voluntary disclosure scores namely, Axis Bank, Federal Bank, IndusInd Bank and Shriram Transport. Infosys, Bharti Airtel, Sun Pharma and Vedanta were the non-bank players in this list of high voluntary disclosure scorers, the report says.

The voluntary disclosure score for the next BSE 100 companies is 4 out of 6, with the weakest performance on debt information and business strategy articulation, the same as it was with the BSE 100 companies in 2015.

The greatest progress on voluntary disclosure by the BSE 100 constituents has been made on two parameters — better debt related information and strategy articulation. These were areas that were identified as weaknesses in the 2015 report. Both show up as weaknesses for the next 100 companies — indicating perhaps the areas to focus on for these companies in 2016, the report says.

FTI says, Indian companies have expended significant resources in reviewing disclosure policies and creating the necessary processes to be aligned to the new regulations. "Clearly, some Indian companies are leading the way — leveraging disclosure as a strategic signal to investors, employees, business partners and the public — that they are well governed and best-in-class corporations. At the same time, there are Indian companies, which have embraced regulatory changes in a strictly legalistic manner — following the letter but not necessarily the spirit of the regulations. Requirements of disclosing information about analyst engagements and presentations made to them have at times been selectively interpreted as information about analyst engagements only without making the information shared with them available to the wider public," it concluded.