Indian companies are unlikely to abandon quarterly earnings reporting despite global regulatory changes, according to financial experts. Sandeep Parekh, Managing Partner at Finsec Law Advisors, stated that while the debate has gained traction after the United States Securities and Exchange Commission proposed allowing companies to move from quarterly to half-yearly reporting, companies are unlikely to move away from quarterly earnings as investors prefer frequent updates. Shriram Subramanian, Founder & MD at InGovern, emphasized that institutional investors are unlikely to support reduced reporting frequency because regular disclosures help limit information gaps between management, analysts and public market investors.
The US SEC proposal aims to reduce compliance burden and costs while allowing management to focus more on actual business performance. As reported by CNBC TV18, Parekh noted that the biggest argument in favor of half-yearly reporting is that management distraction is reduced, with some arguing it can reduce short-termism, though this remains debatable. Subramanian supported the idea, stating he would support it if it happens, especially since it would remain optional and companies that want to continue quarterly reporting would still be free to do so.
The primary opposition to semi-annual reporting comes from institutional investors, particularly hedge funds and momentum-driven investors who rely heavily on information flow. According to Subramanian's analysis reported by CNBC TV18, these investors are concerned that management may engage privately with analysts and investors, leading to wider information gaps for the broader market. The experts noted that large investors, not just hedge funds, but all institutional investors would still want quarterly disclosures, making moving away from quarterly reporting unpopular with the investor community.
Experts suggest a measured approach to any potential regulatory changes, with Subramanian proposing that companies outside the top S&P 500 could move to semi-annual reporting first before extending it to larger companies. If such a law were introduced in India, the top 100 companies would likely continue with quarterly reporting, while smaller firms might experiment with half-yearly reporting. Parekh noted that about 100 years ago in the US, even blue-chip companies did not issue annual reports regularly, suggesting that adoption may not be immediate across all companies.
Technology advancement has significantly reduced compliance burden for large companies, according to the experts' analysis reported by CNBC TV18. With technology and enterprise-wide systems, the compliance burden has already been reduced significantly for large companies, making the transition to semi-annual reporting more challenging for established firms. Parekh emphasized that companies already reporting quarterly may find it difficult to shift to half-yearly reporting, with investor pressure continuing to remain strong even if the system becomes optional.
