Equal treatment to stakeholders
The pandemic has provided an unprecedented opportunity for investors to identify high-quality companies. By looking at whether a company’s management treats all of its stakeholders equally, we will be able to distinguish the good companies from the others. Stakeholders do not just mean the majority shareholders, but also minority shareholders, employees, the tax authorities, local communities and the environment. Organisations that have shown that they proactively take care of their stakeholders have sent a reassuring message. The good companies are usually the ones that prioritise their employees’ safety.
What we do not see much of, behind the TV news reports about India, are the efforts that high-quality organisations there are making to help their employees and others in their environment. In many countries, such measures are the responsibility of governments.
It can be eye-opening for foreigners to see just how much the socially responsible private companies in India are doing for their stakeholders, especially their employees. Things which in other countries might be done by the state. For instance, Infosys, India’s second-largest IT services company, has around 250,000 employees, the majority of whom work in India. Infosys has partnered with almost 1,500 hospitals in over 200 cities for the testing and treatment of its employees and their family members, and has set up vaccination centres for employees on many of its campuses.
Similarly, HDFC Bank has partnered with hospitals to provide vaccinations for its employees, and has tied up with hotels across the country to provide isolation facilities for those who are infected. It also offers staff e-consultations with doctors.
Agility and resilience of Indian companies
The agility and resilience of the best private companies in India were evident before COVID. They are used to uncertainty, and accustomed to working in a system that is not as supportive as in many other countries. They have had a rocky ride even before COVID: the global financial crisis in 2008-09; infrastructure and bad loan problems in the first half of the 2010s; demonetisation in 2016; the introduction of the goods and services tax in 2017 and the non-bank financial NBFC crisis in 2018.
We expect their ability to face challenges and adapt to change, will position Indian companies for potentially strong earnings growth from a low base over the next five to seven years, once the COVID pandemic has eased.
Last year, the companies in our strategy established strong continuity plans, scrambling to set up IT systems, remote working, and digital solutions to help them deal effectively with buyers and suppliers and channel partners in the absence of in-person communication. They have also strengthened their balance sheets during the unprecedented lockdown. Their quarterly results reported through the peak uncertainty of last year also demonstrated an inherent management and franchise resilience, which have increased our conviction that they will be able to deal successfully with the risks arising from the surge in infections.
This year, these things are already in place and companies were already equipped when the second wave arrived. They are well positioned to emerge from the second wave stronger.
Vinay Agarwal, director, FSSA Investment Managers