Analyzing Tone of the Annual Report - An Indian Context

Investment is a present-day pledge of money or an asset in the hope that it will bring benefits in the future. Investors have a wide variety of instruments to invest. Equity shares are one of the instruments. Companies sell their equity shares in the primary market, and investors can resell it in the secondary market. In India, it is mandatory for all companies to publish annual reports. The annual report is composed of the director's report, auditors report, financial statements, and notes to the accounts. Financial statements are in quantitative form while the director's report, notes to the accounts and auditors report are in qualitative form. Investors read the annual report and if they found the tone of the annual report to be positive, then they invest else they disinvest. The proposed paper builds the portfolio based on the tone present in the annual report. It also analysis the tone of the companies which are under the supervision of the national stock exchange of India and are yet to be registered. It is interesting to note that out of 123 companies under the supervision, only 7 have a positive tone, 43 are neutral, and 73 companies have a negative tone. The paper also analyzed companies belonging to different sectors. It is observed that information technology companies have a more positive tone than automobile companies. The paper via hypotheses establishes the existence of a positive correlation between the tone of the annual report and the performance of the company.