My Message to Veritas Investment Research Firm:
Don't you see any hope among the Indian Companies and when will you issue a Buy Recommendation to them!
In the last few years, a research firm based out of Canada, Veritas has only come up with scathing reports for Indian companies. They have openly challenged BRICs growth prospects and investment returns by calling it a world's imagination. As per them the riches can be made only in North American region. They have openly disputed the real returns which investor have made by investing in BRICs in the last one decade and more.
Veritas has recklessley provided few poster child examples where as per them everything is questionable. My contention with Veritas is why every company they cover has to be a short idea, can't they find one well run company in BRICs, that they have to paint everything with one same brush. This is not reporting then, it's called biased reporting which is not good for the people who read those reports. Most of the investors and hedge funds make money by both going long and short, so why is this outcry against BRICs in terms of corporate governance. I am sure in the past they must have found enough short candidates in the North America but are they painting everything there with one brush.
Legendary investors like Warren Buffett have invested in PetroChina and made billions of dollars, there are many more examples like that of major institutional investors making ton of money by investing in emerging markets. I think when investors have practically made money and not just coming up with theoritical research reports, entire world knows who is right. Veritas needs to broaden their mindset for emerging countries by digging in further and also start covering companies where the company is world class, stay rest assured, if they know where to look at they will find plenty of them.
Veritas has a genuine concern when they talk about corporate governance, accounting standards and disclosure practices among BRICs. Their financial standards need complete overhaul, there is no question about it but do they need to come up with all the negative side of the emerging countries, what about the positives. Returns made in BRICs specially China and India despite all the issues in the last decade have been outstanding compared to the developed world. Investors too know about this so no matter how much a research firm can trumpet the horns of their advanced knowledge of corporate governance and accounting standards, the fact of the matter is investors need Alpha and there are not many places nowadays where they can find that.
So as long as BRICs keep on providing the extra yield, no amount of malign from research firms like Veritas is going to down play the role of emerging markets in this century. Denying the fact that riches are not going to be made in the emerging markets is in fact denying the truth (Veritas a Roman word meaning Truth).
There is no question as mentioned earlier that sooner the emerging countries adopt world class financial reporting framework the better it is for the country. One point though which one needs to keep in perspective despite any amount of criticism against any emerging economy is that some time earlier even the developed markets have faced these same problems. Despite that when these countries were growing, investors have made real money by investing in the companies of that era. So how-come we are expecting everything to be same from the economies who are in the development stage now. This is not fair to say the least. As far as advanced financial regulations are concerned we all know even with that in place what happened in the last decade with Enron, WorldCom, and so many other developed country companies.
I have written considerably in the past on why economies like China and India are going to deliver better returns despite all the monumental issues which these countries face today. Main reason is the demographics which play a huge role when a country is in growth phase, this has happened through out the history, there is lot of hard evidence to prove the same so why is it going to be different this time. Close to one third of the world population lives in China and India and the largest work force is there so what is coming in the way for them to become the next superpower. China has already shown remarkable growth in the past 3 decades and India is going to continue the same path for decades ahead. Someone telling that corporate governance and financial regulations are going to stop that have no connection with the reality of what is actually happening on the ground level.
Veritas needs to come to emerging countries and then write reports, good or bad but but need to be in touch with the reality before making claims like that the investors investing in BRICs don't know what they are doing. At the end of the day, it is investor's money, if they will not get the returns they will move to a new destination, they are not going to wait for any research firm like Veritas to tell them what they are suppose to do with their money. This is free market, if the investors don't make money, they just leave.
Veritas needs to do some soul searching and come up with a balanced approach towards covering companies from BRICs and not just give Sell recommendations but come up with some Buy recommendation as well. The past decade data showed investors investing in BRICs made money and making money is what investing is all about. This is not just economies of forecasting but a real money making machine, so invest in emerging markets and be a part of the constructive growth.