Two major vehicles for Indians' long-term savings, Employees Provident Fund (EPF) and the National Pension System (NPS), can now invest a portion of their savers' funds in stocks. It is, therefore, vital that both their fund managers and the managements of companies in whose stocks the investment takes place have a truly long-term approach. In between the two come a vital intermediary: Analysts who process information and offer advice, and who also ideally should have a long-term perspective. Against this, we have the widely copied US model which is hostage to the "tyranny of quarterly results." Corporate leaders, mindful of losing investor support and fearful of the prospects of their stock prices dipping at the slightest blip in quarterly numbers, engage in short-termism at the cost of innovation and long-term growth.
A good example of short-termism is the unanimous "sell" or "reduce" recommendation given last week by brokerages for Tata Steel. Not only has it posted highly adverse results (a huge loss) for the December quarter, it is set to bring on additional capacity of over a million tonnes (mt) when there is global oversupply and undercutting by Chinese steel exporters.
Active mid, small-cap funds look smart in this market correction
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