Equitymaster Poll 2011 Results: Tatas Most Trustworthy

Trust has assumed a different meaning amongst investors over the past two years. Uncovering of some of the biggest corporate scams in India's history has left investors completely shaken. As if the Satyam fraud was not reminiscent enough of the eroding ethics in Indian corporate value system, the CWG and telecom scams made investors run for cover from companies that showed even the slightest lack of transparency.

Unfortunately, for us Indians, the eruption of scams and scandals have become so commonplace over the past two decades, that we have got used to moving on with life without really batting an eyelid. But the scale of the telecom 2G scam and the can of worms that it opened in India's political system took matters to a different level altogether. It isn't that such cases have not occurred in the past. In fact, they have taken place globally too (think Enron). But instances of blue chip companies ruining investor wealth with unsound business practices have become a nightmare for Indians only recently. Globally too, reputed auditors and credit rating agencies fail to evince as much trust as they did earlier with their certifications.

In such a scenario, we at Equitymaster conducted a poll to get a perspective on which companies enjoy the maximum trust and credibility for transparency of reported financial statements like Annual Reports and quarterly results. The results paint an interesting picture.

The results were assertive and surprising at the same time

The corporate group, which the financial investors think is the most trustworthy, is the Tata Group with Infosys coming a distant second. More than 60% of the participants showed their confidence in the Tata Group. Others like Infosys and HDFC group trailed far behind in terms of share of votes.

Ranking of most trustworthy companies

Corporate groups	% of votes
Tata group	61.2
Infosys	16.9
HDFC group	9.1
L&T	4.3
Sundaram / TVS group	2.3
Mukesh Ambani group	1.6
Aditya Birla group	1.3
Anil Ambani group	1.2
ICICI Bank	1.1
Bharti Airtel	0.9

Source: Equitymaster

Interestingly, in an earlier poll that we had conducted to gauge which is the most admired corporate in 2009, the results were similar. Then too, the Tata Group bagged the highest honours and Infosys had to be content with the runner-up position. This itself shows that if the management quality is superior, an honest presentation of the financials is a given.

What is interesting to note is that after a massive correction in their stock prices, the companies run by the Ambani brothers seem to have moved up the ranks in terms of trustworthiness. For many years, the general consensus has been that the financial disclosures of these companies (Mukesh Ambani group and Anil Ambani group) leave a lot to be desired, as they were earlier placed at the lowest end of the rankings. However, they seem to have found some serious competition from the ICICI and Bharti Airtel groups recently.

Does the Satyam scandal mean that there is considerable doubt in the financial statements of these companies? Not necessarily and this was reflected in the observations made in the poll. While some felt that many companies resorted to window dressing their accounts, albeit on a smaller scale, others were of the opinion that the financial statements presented are of inferior quality and are not necessarily misrepresented. Thus, the entities finding themselves at the bottom of the poll ranking could certainly win some investor favour with better disclosures and transparent operations.

In the days before the financial meltdown, returns from stocks were probably the only criterion for investing. Sound financial reporting and trustworthy managements which are as important were not given their due consideration. The global financial crisis and the recent spate of scams have changed all that. Investors have now come to appreciate the importance of ethical business practices. It is encouraging to know that investors are getting themselves better educated on the profile of the companies, their management, business practices and long term prospects of the same. Better late than never! This will not just ensure that investors secure strong returns in the long term. But it will also ensure that company managements do not take investors' trust for granted!

Winners and losers of the 2012 Corporate Trust Poll. Click here!