India’s BSE has the most number of listed entities in the world (8500 - more than the Top3 market capitalized exchanges, NYSE, Tokyo Stock Exchange & London Stock Exchange, put together), in an under US$ 1 trillion capitalized equity market – that’s a lot of mid and small cap-Indian companies. In fact, mostly micro-caps when seen in dollar terms.
Why would a small company in India rush to raise public money? Asked another way – we may ask what keeps micro/small companies from accessing the public equity markets in other markets? Cost of adequate disclosures & compliance seems to be single most significant factor. Continuing with the same thread, Indian managements of small companies are finding it simpler to raise public money, at a fraction of the associated costs in other markets. The pertinent question – is this a sign of efficiency or inefficiency?
We take pride as an entrepreneurial people, creating value and building profitable businesses in hyper-competitive markets. This is the necessity that has spawned innovations like the Nano, the Akaash tablet & the lowest telecom tariff structure. Must this creative & exploratory streak continue into the capital markets & management of public money by management – this too is a pertinent question.
To quote a distinguished management practitioner, what got us here is not going to take us ‘there’. Judging by the actions of the markets regulator, this is a more widely shared sentiment. For Indian managements, this is worth a pause. To ponder on the future. We are not going to grow by fighting over scraps. Cutting corners. If Indian companies are serious about seeing the Recession as a growth opportunity, to grow in international markets, raise their stature & command the respect of international institutional money – we have ‘open up’ and be a lot more communicative – raise disclosure standards, governance practices & engage more with investors. The traditional view has been to disclose only as much as mandated by regulation. This is a woefully inadequate view when global investors, international joint venture partners & even key talent are considering a long-term partnership with the company.
Yes, there is an additional cost to greater disclosure & compliance. It’s a leadership requirement if Indian managements want to think beyond India. Ask $INFY.