Interview with executive vice-president of Veritas Investment Research
What is Veritas’s research philosophy? How do you pick the companies you cover and does your research always focus on governance issues?
Governance is the most important criterion in contributing to shareholder returns over time. For instance, Enron was a governance failure. Other companies in the same business have succeeded. We pick companies based on institutional interest, liquidity, accounting integrity, quality of disclosure and many other aspects. Most importantly, we want to have a differentiated and defensible investment thesis whether it is a BUY or a SELL report. We do not have HOLD recommendations on our stocks.
Is the increase in interest in governance-related issues and scams a regular feature in bear markets? Do you think such issues and, by extension, reports on such issues will be given so much importance in a bullish market?
Governance is important in all kinds of markets. People can choose to ignore it, but ultimately it will impact stock performance. Just look at the returns generated over the last five years by the companies we have written on, compared to the Sensex.
The usage of sweeping language bordering on rhetoric has become a regular feature of your report. Do you think this is fair?
Perhaps in some instances my language is strident and/or provocative. Usually it is unintentional, but in some cases maybe not.
In most of the reports, you have not approached the target company for comments or information. How do you justify this?
In all cases, we are presenting an opinion based on publicly available information. So interacting with the companies will neither change their stance nor our opinion. Moreover, regulations prohibit selective disclosure anyway; so the companies legally can’t say anything that is not in the public domain. If there is an error related to data in our report, we will rectify it. In India specifically, talking to companies in advance will antagonise them unnecessarily and could also involve legal notices etc.
There are accusations of your helping bear cartels or groups of short sellers. Some critics even say you are part of the cartel. Are you at arm’s length from your subscribers?
We are not part of any cartel. That is a meek and boilerplate defence put forward by organisations of questionable ethics.
The data on exchanges show a marked spike in open interest between the time your subscribers have received the report and the wider publishing. Does this mean the report is a part of a cycle which feeds on itself?
The reports have credibility. Investors and readers of the report are willing to put capital on the line. People are willing to act on the investment thesis because it makes sense. How that plays out in the marketplace is unknown to us. We have no trading, no underwriting, no banking, and no advisory. Sitting in Canada we don’t know how clients are trading. And if my reports move Indian markets, then it simply means that I am the best analyst on those Indian stocks worldwide.
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