Sun Pharma, a blue chip company (i use the term Blue Chip as it sends you an image of a very soundly managed company, but i personally believe that there is no such company as a Blue Chip for markets on a perrenial basis), is under a cloud on whistle blowing. Yes Bank is reeling on various issues including mis reporting of NPA’s and promoters pledging shares on a back door route. IL&FS literally brought the markets down on defaults due to lack of management accountability. NSE, india’s premier stock exchange, is facing probe on helping select brokers take advantage of price information.
Other companies coming under scrutiny have seen dramatic fall in stock prices including Manpasand Breweries, Shankara Builders, Infibeam and Dilip Buildcon. We sold off Dilip Buildcon from our portfolios at a good profit, but i admit that we were caught unawares on some governance issues and even if the issues were not substantiated, i did not want to hold a stock under a governance issue in your portfolios.
You would have noticed in all our portfolio construction presentations, we talk about the importance of corporate governance on stock selection. My first question to my analysts is How is the Corporate Governance? even if the company is a high flyer in the market, even a hint of any issue, the stock is rejected outright.
Sometimes it is difficult to pinpoint any issues that can crop up later but there is high due diligence on corporate governance in our stock selection. Even if many other companies are giving extraordinary returns, once governance issues emerge, the fall in prices is dramatic.
Your portfolios are constructed with governance given primary importance and we will monitor the companies closely for any governance issues that may come up in the future.