VERITAS - LET THE TRUTH PREVAIL

By Ruma Dubey

Veritas. In Roman mythology she is the goddess of truth, a mother of virtue and it is said that she is hidden in the bottom of the Holy Well given her elusive nature.

And in today’s era, we have a Canadian company, Veritas Investment Research, which has taken its name seriously and seems to believe in reporting only the truth.

In June 2012, Veritas put out a report on Reliance Communication, downgrading it and make a sweeping statement that the stock was worth Rs.15. It called it a ‘house of cards’ and listed high debt, "whimsical" accounting policies and poor corporate governance standards as the key reasons for the downgrade. Rcom retorted back, stating that the report "lacked credibility" and was full of factual inaccuracies, baseless allegations masquerading as research. It also stated that Veritas was destroying investor confidence through sensationalism.

And after Rcom, Veritas trained its guns on the Indiabulls group and recommended  a “sell” on all the entire goup stocks. Veritas released this report on 1st Aug, stating that the financials of two group firms were ‘unreliable’ and one firm was being run as a ‘piggybank’ for the controlling shareholders, at the cost of public investors. Indiabulls did not take this sitting down as quietly as Rcom. Apart from dashing off a letter to the various stock exchanges, refuting the charges, Indiabulls filed a police complaint, accusing the analyst for demanding money for holding back the report, ahead of its release.

Now both are very serious charges but having a common thread at the core – corporate governance. But because it has now become a public spat, there are many questions, which we as investors need to ask.

If Indiabulls has refuted all the charges made by Veritas in its report, why did it merely call it being factually inaccurate? If it has so much conviction, wouldn’t it have been more right for Indiabulls, to refute each and every accusation of Veritas, with facts and figures?  Instead of making counter allegations, it would have been better for the investors if the company has given a point-to-point rebuttal, with actual numbers. That would have clearly shown who was right – Veritas or Indiabulls. This very broad, standard statement and the counter allegation reeks of more sleaze and politics.

Veritas? Two years ago, no one knew of this existence of this company but today, it has become the savior for investors, having the guts to call a spade a spade. The company, is an independent researcher, it is not a broker or part of any other company. It earns through subscription. And the reports which it publishes are based on information available in the public domain – balance sheets, published results, press releases issued to stock exchanges. So there is no underhand dealing or insider information which causes a bias. Thus essentially it is scrutinizing the numbers and publishing based only on that. So what is wrong in speaking the truth?

Many accuse the company of being too sensational. Well, when companies make sensational advertisements, which may or may not be the truth, does anyone bat an eyelid? In today’s world of information overdose, unless there is a headline grabbing statement, no one pays attention. And traditionally, equity researchers are more balanced and ‘quieter’ when it comes to publishing reports which is why Veritas’s headline grabbing strikes a wrong code. But who has set any code about how to state facts?

Earlier too Veritas had published scathing remarks on RIL, KFA, DLF and then Rcom and now Indiabulls. And if one goes back to its previous reports, it becomes evident that what it said was not false; it hits home.

The story of Veritas shows how, if true number crunching is done and there are guts to spill the truth, equity analysts alone, like the rating agencies can make India Inc toe the line when it comes to corporate governance.  But sadly, most equity agencies have their own fish to fry and thus, the basic trust or faith on equity reports is lost in the growing stink.