‘Corporate ethics was always at the forefront of valuation’

Markets have been very quick to punish companies alleged to have made unethical gains. As an increasing number of companies are finding themselves in the dock, Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services has said in an interview with Sandeep Singh that the valuation gap between well-run companies and those seen to be tainted on account of unethical practices will go up. Excerpts:

How do you currently see the environment where companies are openly being targeted for unethical practices?

Companies involved in the infrastructure sectors, including power, telecom, port, mining etc. that have to deal with government, are the ones that are affected the most. These businesses are the backbone of any country and there is a nexus between bureaucracy and business. Earlier, the bureaucrats and businessmen could get away with irregularities and could prosper at the cost of the consumer. While this has always existed, it has reached unsustainable levels now and is getting exposed. As a country we have come quite far and it is time to reset. Politicians and businessmen have to come together and find new rules of game. We are becoming a soft state and the psychology is that you can get away with anything. Unless you punish them, no one will be scared and it will not be preventive.

How has all this been taken by the markets?

Market is the most democratic place and people started withdrawing from such companies. Stock prices are not determined by big guys but the small guys, today's stock price is just today's opinion and the moment my opinion turns negative, even if I am a small guy I will set the price lower. All these people are getting hit. People do not forget and will not forget till the next generation. Building reputation takes 20-25 years and you can lose it in just half an hour.

... contd.

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