NICK BASTIN

"Competition means that Indian companies need to think about how they present themselves to the international market as never before."

Nick Bastin
Director, Capital MSL

Why investor communications is increasingly important for Indian Companies seeking international capital.

Since Essar Energy's successful IPO on the London Stock Exchange in May 2010 placed India in the spotlight of global capital markets, there has been tremendous interest from Indian issuers in how to tap in to international pools of capital. While historically most Indian growth was financed domestically, there has been an increasingly strong appetite to look for external capital, to allow greater diversification and flexibility in financing.

This was allied with great interest in emerging markets in 2010, when significant capital flows shifted from stagnant developed markets to more attractive high growth markets like India. While that trend has been reversed in 2011, there is no doubt that international investors are focused on investing in India as never before.

However, for a company to be able to tap in to this demand it is not enough to rely on selling the appeal of India's phenomenal demographic growth opportunity. With the number of companies seeking listings, and with more investors prepared to invest directly through domestic exchanges, companies have ever growing competition - and investors have plenty of options to access that demographic growth story.

In addition, Indian companies are not only competing with a growing pool of local and internationally listed Indian competitors, but they are also competing with numerous corporates from other emerging markets, that offer similarly attractive growth profiles.

With equity investment essentially based on an assessment of expected future cashflows, investors rely on a combination of objective and subjective data to reach a view on what those future cashflows might be worth today. The objective metrics such as asset valuations and discounted cash flow models are relatively straight forward, what is far harder to assess are the nonfinancial elements - such as the company's strategy, intellectual property, the quality of its management, or how it manages its non-financial risks - health and safety, or the environment for example - issues which could fundamentally impact its license to operate. This is not to mention the question of whether an investor feels they can trust a management team and their ability to deliver.

Therefore, for companies there is a need to review their communications to see if it is fit for purpose in these competitive times - does the market really understand the business drivers and the strategy behind them? Do your financial results really illustrate the progress you are making towards achieving your strategy? How often does management meet with investors face-to-face and explain the good, and the bad in their performance?

This competition means that Indian companies need to think about how they present themselves to the international market as never before. The effective management of a company's communications with its investors plays a critical role in ensuring that they fully understand its business and strategy, and can therefore ascribe the optimum valuation to its shares.  

With so many stocks to pick from in so many markets, investors can be very choosy. They have long memories and short attention spans, companies cannot afford to be complacent.