Most long-term investors complain about the ‘noise’ in the stock market generated by the deluge of information that pours in through the day. Stock prices not only sway to company specific information, they also gyrate to macro numbers, industry specific data besides political developments. It is not a great idea to tune-out completely as stocks that you hold might have tanked 20 per cent or risen by an equal degree based on this news-flow, thus needing urgent action.

While not much can be done about the news that keeps pouring in everyday, the practice of reporting quarterly earnings by companies needs a re-look. Many, including the US Presidential hopeful, Hilary Clinton and Laurence Fink of Blackrock have recently joined the sect that thinks that quarterly earnings announcements do more harm than good. In a bid to show rosy numbers many companies have put off long-term capital expenses or have resorted to window-dressing and creative accounting. If these practices continue quarter after quarter, it can escalate in to a major crisis as it did in Satyam Computers. Three months is anyway too short a time to show substantial improvement in the business.

It also promotes short-termism among investors, who keep buying or selling based on the quarterly performance instead of looking at the long-term growth. It will of course not go down too well with the analysts or the media, for whom this is quarterly ritual is a major part of their work.

It can be argued that quarterly results announcements are necessary in a market such as India that has more that 3,000 listed companies, many of whom are extremely small and might not even have a decent website.

Making reporting of quarterly numbers mandatory helps investors stay abreast of these companies. So, we can perhaps find a mid-path; let companies announce results every six months and ask companies to furnish quarterly numbers to those who ask for it.

Senior Deputy Editor & Head of Research

Related Topics