Thursday, February 23, 2006

Communications and threat of delisting

Less than 10 days after the Sensex zoomed past the 10,000 mark for the first time on February 6, 2006 came a report in The Financial Express that around 4,000 companies might be delisted as they had not been traded on the Indian stock exchanges.

Quoting Securities and Exchange Board of India Chairman M Damodaran, the report said only 2,500 of the 7,242 companies listed on the Bombay Stock Exchange (BSE) were being actively traded.

The move was expected…. Just a couple of months back, a Survey revealed that 38 per cent of the small investors held shares in delisted companies. The survey was sponsored by the Investor Education & Protection Fund of the Ministry of Company Affairs, Government of India.
The alarming situation is a cause for concern not only for the regulators but also those entrepreneurs who sincerely strive to create wealth for investors. Such developments further mar the credibility of India's equity environment, and wean retail investors farther away from the stock markets.

Amidst this welter of skepticism a question that springs to one's mind is: Are all the 4,000-odd companies that face delisting bad? Isn't it possible that some of them might be getting the axe because of their inability to communicate their success story/ growth potential/ strengths?

Absolutely. Estimates suggest that there are around 600-700 such companies. In other words, about 15-17.5 per cent of these companies are well-run entities. Several of these companies might have a consistent track record of growth but might be faltering consistently in communicating it to their stake-holders and the investment community in general. There might be other entities that could be tottering because they are small -- and perhaps young. There might be still others which are steady players without any growth potential.

There is an urgent need for the promoters of all such companies to reach out to their stake-holders and explain their story. Each and every enterprise has its own strengths, and it is the communications consultant's job to ensure that they are communicated to the stake-holders.

The promoters have to build their reputation with a strategic investor relations programme. This will help them further burnish their reputation.

Reputation is the perception of quality in a person, organization, product, or service, as distinct from the quality itself. Likewise, the market value of a company depends as much on its financial performance as on the perception of its performance in the investing world.

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