An index of the seventy-five most ‘connected’ companies in India has significantly underperformed the broader market, dragged down by factors including reports from the Comptroller and Auditor General's (CAG), media exposes and Supreme Court judgements.
The index, designed by Ambit Capital, was down 50% compared to the BSE-500, said the brokerage in its October Strategy and Economy report.
"...with our ‘Connected’ Companies Index (an index of the 75 most-connected companies in India) underperforming the BSE500 by 50% since the publication of the 2G report, the last three years have been an unqualified positive for those who want to see a cleaner India," said the report authored by Saurabh Mukherjea, chief executive officer, Institutional Equities business at Ambit Capital.
It said that earlier business models used by such companies seem to have come undone.
“The CAG’s reports, Supreme Court verdicts and RTI-fuelled media exposés stymied the... models once civil servants stopped signing off on files and politicians sought shelter behind committees,” it said.
As a result, production of natural resources has fallen, capex growth has come off and banks are faced with an increasing number of bad loans.
However, the change is for the better feels Mukherjea.
“…the catharsis triggered by the CAG’s report is for the better as it has retarded the rise of ‘connected’ companies. We argue…that over the next two years as policy paralysis ebbs away, some of the better managed large companies that have suffered over the past three years will make a comeback,” he said in the report.
