We, at FTI Consulting, reviewed publicly available disclosed information by leading publicly-listed companies in India to create a weighted, Composite Disclosure scoring system with six Mandatory Disclosure parameters and five Voluntary Disclosure parameters, and applied it to the Bombay Stock Exchange ("BSE") 100 Index to create the India Disclosure Index. When scored on a composite scale of one to 10 (with a 10 score indicating that all 11 Mandatory Disclosure and Voluntary Disclosure parameters are publicly and readily available), the India Disclosure Index revealed that only 41 percent of constituent companies of the BSE 100 index were fully compliant on Mandatory Disclosure parameters. The report also revealed low levels of Voluntary Disclosure by Indian companies, with a median score of 3.5 out of a maximum of six and with most providing inadequate information relating to business strategy and debt. This is particularly concerning at a time when international institutional investors are demanding higher levels of voluntary disclosure from emerging market companies.
The low disclosure scores of the India Disclosure Index are a cause for concern in the context of the recently enacted Amended Clause 49 of the Securities and Exchange Board of India ("SEBI") Listing Agreement, which places responsibility for 'adequate disclosure and communications' with the board of directors of India's listed companies.
We looked at disclosure in a holistic manner, covering voluntary as well as mandatory practices, to get an accurate picture of current practices amongst Indian companies. The low mandatory disclosure scores are surprising, but also something that can be easily fixed. The real challenge is to convince Indian boards and management teams that they need to go beyond mandated levels and disclose more information. At the heart of it, more disclosure and transparency are excellent proxies for better corporate governance.
Average Composite Disclosure score ― 6.7/10
Median Mandatory Disclosure score ― 2.5/4
- More than half of all BSE 100 index constituents have Mandatory Disclosure scores less than 2.5, reflecting poor mandated information disclosure.
- Fifty-one percent of Indian companies did not provide analyst transcripts on websites.
Median Voluntary Disclosure score ― 3.5/6
- A third of all BSE 100 index constituent companies have Voluntary Disclosure scores of three or less.
- Sixty-eight percent of BSE 100 index constituents did not provide adequate information on debt-related information.
- Fifty-seven percent of companies currently did not provide adequate strategy-related information on their corporate website.
About the India Disclosure Index
The India Disclosure Index 2015 is a report of India's leading companies by market capitalization, specifically those on the BSE 100 index, and their disclosure and financial communications practices, as assessed by 11 publicly available information disclosure parameters. The full methodology and ranking of the BSE 100 companies by their weighted disclosure scores (split by Mandatory and Voluntary Disclosure scores) can be found here: http://www.fticonsulting-asia.com/insights/reports/india-disclosure-index-2015.aspx.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.