Sunday, February 9, 2014

Corporate Governance Rating for listed companies in India

SEBI is considering a "Corporate Governance Rating" for every listed company in India which, in my view, could be a game changing event for minority shareholders. Security Exchange board of India is in the process of finalizing its new Corporate Governance Code and revamp insider trading norms. Beside having new rules that are largely targeted to protect minority shareholders, Governance Rating for each company will be very handy specially when a small investor is investing in mid and small cap companies.

Like IPO grading, a grading system for companies on governance front is a much needed reform that will strengthen the overall capital market of the country. For minority shareholders, governance is much more important than valuations and the former being subjective it becomes very difficult to asses the score in that front. 

If "Corporate Governance Rating" become reality it will help all of us in flushing out almost all crap and scam ridden companies. All we need to do is check the score and completely avoid companies which are below certain level. 

In my whole investing career more than 90% of my loosing bets were due to governance issues in the companies. Strong insider trading rules and tough penal actions for the guilty along with Corporate Governance Rating will surly help build confidence in the Indian Stock Markets and encourage wider participation by small retail investors. 

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