Web Excl: Use Basics to Get Better

Basic Investor relations techniques, when pursed effectively hold the key to bring investors back to capital markets. Clear, timely and easy to understand communication has always helped investors to make informed decisions and will continue to do so.

Timings have been very uncertain recent past. All spheres of economy were hit by recession, which has now started showing some signs of revival. One thing which has remained definite all along is uncertainty; booming economy, sudden recession and now fresh signs of revival. There hasn’t been any race among listed companies to be the first to release the annual results, as we just passed through peak financial reporting season of the year in India. A strange silence had descended directly from ‘Silence of the Lambs’ to the Dalal Street. And as far as Analyst briefing goes, RSVP list of analysts and fund managers went shorter and shorter this time.

 

Financial markets worldwide have changed dramatically over last year and trickling effects on Indian listed companies are clearly visible, as the companies are showcasing their performance of the last financial year.

Bear phase at capital bourses worldwide since the very beginning and economic recession has done the job very well to shake the confidence of retail investor in stock market. The effect is so grave that investors are still shaken and prefer to keep safe distance from stock market. Companies on the other hand also cursed the economic recession and then absorbed to the situation. And this ‘status quo’ has constantly and continuously added to the gap between investor and companies and further added at least to the perceived recession.

Is there something, which can change or improve this situation? Yes, there are basic covenants of investors relations, which definitely hold the key to the situation.  If your company is in an industry that is currently plagued by recession, help investors clearly see what differentiates your company from its close competitors.  If your company stock is performing low vis-à-vis competitors, carefully understand the bear case scenario. And then intelligently address these concerns in all your investor communications. Be consistent in your communications.  In case your company stock has been hit hard by bear phase, use the opportunity to build a more suitable investor base. Not every company is a "growth" phase forever, similarly not every company needs a base of "growth investors” forever.

Nothing surprises investors more than the sudden and unexpected unfolding of events and information. By definition per se corporate business is dynamic world and only thing that is certain there is uncertainty. It is this uncertainty that adds premium to risk taken by investors by virtue of their investments. Using effective and pro-active investor communication approaches, companies can neutralize this uncertainty to a large extent, if can’t mitigate it completely and reduces surprise events for investors.

The basic elements of investor relations are information and communication. Both should be right.  Information should be right information and it should be communicated at right time. Financial communication is the cornerstone of the relationship with market players and key to market transparency and its quality is essential to the relationship of trust between issuers and investors.

Capital market discounts everything including events, information and disclosure made by each company Time comes and market suddenly discovers that the product developed by a company is innovative, customers find the quality second to none and analysts find future projections too attractive. And all of sudden, company becomes successful at street and hogs all the limelight and results multiplication of its share price by many folds. However, for each such company, there will be at least 10 other companies, whose product is equally innovative and quality is even better and posses sound financial health and still not able to click with the street.

What differentiates one form the rest is investor relations. The underlying basic approaches or themes of Investor relations are:

• Understand the Investor
• Right Disclosure and 
• Communication at the right time.

Understand Your Investor:

Every investor is a customer. Each and every investor is either a buyer or seller of a stock. The role of investor relations is to persuade and convince the investor (read customer) that a rupee invested in his/her company will appreciate faster than a rupee invested in any other company despite the recessionary times. Persuasion should use fundamental facts intelligently.

Relationship has always built upon the trust and to gain trust of investors, companies need to go extra mile to make investor feel that they are important to company and they are not ignored be the tough times or easy sailing.

Clear and Complete Disclosure

All public companies are sailing in the same boat these days as they are faced with question of expanding and improving communication with their investors, sell-side analysts, the financial media and others.

Disclosure has always been the core of all investor relations practice and even the reason of existence of Investor Relations Function. Disclosure also should be at the core of marketing approach of investor relations and definitely during recessionary times, when credibility and trust are at stake. In absolute terms, disclosure implies transparency. Being transparent, disclosure will equally help all investors to know facts, business environment, performance, and practically all what’s needed. Thus, all investors will at par and will have equal knowledge to make their investment decisions.

Right Communication:

Good investor communication is all about clear, true and transparent information.

One of major expectation of investors is good dividend percentage. This expectation causes lot of problem to companies and particularly investor relation professionals. Use pragmatic explanation in investor communication to make investors understand the balance between profits to be distributed as dividends and the need for profits to be reinvested precisely in recessionary times.  Same approach should be used for forecast of future earnings, if any.

The expectations of the market during recession are very low. Extra ordinary projections may get perceived negatively. And also there may be strong reward to simply meet the expectations. So, make achievable projections. These would need lot of persuasive marketing and make investor relations function more compelling than ever before.

Investor communication subscribe to the philosophy that good communication increases trust. It is a good philosophy because, ultimately, the better informed the investors are, the greater the likelihood for trust in the company’s integrity, and, therefore, the greater support for the stock even during recession.

The writer is Director – Financial Data Services, Impetus InfoTech (India) Pvt. Ltd.