Isn't it interesting that a company's stock falls 30% in a single day over allegations on the promoter's brother being involved in a scam, with no apparent correlation as to how this news might directly impact the company's operations. Now, i am certainly not commenting whether this is justified or not. What i find noteworthy, is that when analysts analyzed the said company, they got excited by the near monopoly the company enjoyed in its markets and super normal returns. Clearly, one of the moat(now risk) highlighted by many buy side analyst before numerous Investment Committee's was the "political closeness" the company enjoyed.
Clearly in the last several months "political links or being on the right or wrong side of the aisle" has become an increasingly important factor when analyzing companies. In the past, analyst use to shrug this factor as the way business is done in India or cost of doing business in India. However, in the last 6 months or so after the 2G scam and Anna Hazare and Baba Ramdev's fasting episodes, I think it has become a very important screen and probably the first screen a company has to pass to guarantee long term sustainable returns for its investors. What we are witnessing here is growing maturity of the indian markets and even though this might be a bump in the short run, longer run the move by institutions and retail investors to punish companies with poor corporate governance records paves the way in making India a safer and sustainable place to invest.
Clearly the findings of Mckinsey's survey bears greater significance
A premium for good governance
https://www.mckinseyquarterly.com/A_premium_for_good_governance_1205
On another note to my fellow investors - would love to hear any frameworks you have to analyze "political closeness" or is it just better to not invest in such companies.
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