Market Analysis

Professional firms preferred over PSUs, MNCs for investment

A majority of institutional investors in the country prefer professionally-managed companies over PSUs, MNCs and promoter-controlled firms, according to a survey.

The survey conducted by industry body CII revealed that professional companies are perceived to generate highest returns for the investors.

The professionally-managed companies are those where shareholding is dispersed among institutional investors.

The survey put the investor return perception score for professional firms at 3.73 on a scale of 1-4, followed by 3.09 in case of MNCs and 2.27 for promoter-controlled companies.

The Public Sector Units (PSUs), where the majority shareholding lies with the government, scored the worst in the survey with an investor return score of 1.36.

The survey also identified Tata Group as the entity with best corporate governance standards, followed by HDFC, Infosys, HULBSE 0.15 %, NestleBSE -1.33 % and Larsen and Toubro.

Overall, MNCs came on the top for best corporate governance, followed by professional entities, PSUs and then promoter-controlled firms.

In the survey, 84.2 per cent respondents termed corporate governance as “very important” for investment decision, while the rest felt it was only “somewhat important”.

As many as 94 per cent of respondents stated that they expect high returns from firms with good corporate governance.

However, only 26 per cent investors have invested purely on the basis of high corporate governance standards.

“This leads us to conclude that good corporate governance may be necessary but not sufficient to generate high returns,” the CII survey said.

“The inclination to invest in professional companies may simply be because these companies have a higher free-float as compared to MNCs, promoter-controlled companies and PSUs where often only a small percentage of the shares are traded in the secondary markets,” CII said.

Free-float refers to the shares held by non-promoter shareholders that are freely available for trading.

When asked about the most frequently opposed corporate actions at the companies, the respondents put intra-group mergers at the top, followed by intra-group loans, and then issue of preferential warrants to select shareholders.

Mergers and acquisitions did not figure on this list, indicating that the respondents acknowledge high risk involved in a merger, but are generally willing to let management go ahead as long as they are not short-changed by the promoters.

The survey was conducted by CII in partnership with the Institutional Investor Advisory Services (IIAS) and the respondents comprised 57 per cent domestic and the remaining foreign investors.

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