Price no more a criteria to buy stocks on D-St; scores trade below face values
Some 186 stocks on NSE traded at a discount to their face values on June 24, 2019.
Face value is the nominal value of stock at the time of issuance or its original cost as shown on the certificate.
Some 186 stocks on NSE traded at a discount to their face values on June 24, 2019 against 56 on January 1, 2018 – a three-fold jump. Among the stocks trading below their face values, over 20 are from the textiles and engineering segments, 18 are from metals space and 10 from the real estate sector.
The polarisation in the broader market is stark. Benchmark Nifty has jumped 12 per cent since January 2018, while Nifty Midcap100 and Nifty Smallcap 250 indices have tumbled 17 per cent and 30 per cent, respectively.
As much as 98 per cent of the stocks have fallen up to 99 per cent in last year and a half. Ashapura Intimates Fashion fell the most at 99.30 per cent, LEEL Electricals is down 97 per cent, Reliance Communications 96 per cent, Punj Lloyd 95 per cent, Reliance Naval 93 per cent and Videocon Industries 92 per cent. These businesses have been crippled either by rising debt or issues with corporate governance.
Ashapura Intimates Fashion traded at Rs 2.07 on June 25 against Rs 452 on January 1, 2018; LEEL Electricals is down from Rs 286.50 to Rs 8.20 Reliance Communicatons is down at Rs 1.20 from Rs 35.40 and Reliance Naval has fallen to Rs 4 from Rs 65.20
The selloff may have left some stocks at mouth-watering prices, but analysts have advised investors to remain cautious and not try and nibble at just about any stock.
Most of these businesses are have been wrestling with issues ranging from poor corporate governance standards to bad accounting practices, rising debt and anemic earnings growth.
For instance, IL&FS group stocks have taken a heavy beating after some group companies defaulted in debt repayment last September. The group owed over Rs 90,000 crore as of March 2018. In October, the government superseded the IL&FS board and appointed a new one. Shares of
IL&FS Transportation and IL&FS Engineering are down over 90 per cent since January, 2018.
Claims of dues against Reliance Communications (RCom) have risen to Rs 57,382.50 crore with new entities, including some Reliance Anil Dhirubhai Ambani Group companies, joining the creditors’ list, according to a regulatory filing.
Reliance Power, Castex Technologies and Unitech are some of the other stocks which have declined over 90 per cent in this period. Unitech promoters were arrested by the economic offences wing of Delhi police in August, 2017, after homebuyers complained about non-delivery of apartments after taking significant amounts of money. Managing Director Sanjay Chandra has been in jail ever since. Castex’s, too, is a case of over-leveraging.
“More money is going out of the stock market then what is coming in. The reasons are leverage investing from promoters and larger investors,” said Shyam Sekhar, Co-Founder of Chennai-based iThought.
He said institutional money is chasing larger parcels currently, which means people are chasing quality even at higher valuations.
“I don’t think this market is running for penny stocks. Investors should not chase this space, unless a company has extraordinary merit and is going to grow for next five years. Investing decisions should not be based on price only. We are bullish on the banking sector, considering the ongoing credit crisis,” he said
Quarterly losses are mounting for some companies. Anil Ambani’s Reliance Naval reported Rs 9,399 crore net loss for March quarter, while losses stood at Rs 7,767 crore for Reliance Communications, Rs 3,559 crore for Reliance Power, Rs 2,499 crore for Rolta India, Rs 1,425 crore for Essar Shipping and Rs 1,222 crore for Karuturi Global.
Meanwhile, there are interesting turnaround stories. Alok Industries posted Rs 6,106 crore profit for March quarter against Rs 1,320 crore loss a year ago; Tata Teleservices bounced back Rs 681 crore loss in Q4 of FY18 to report Rs 580 crore profit for Q4 of FY19, and United Bank of India turned around to post Rs 95 crore profit against Rs 260 crore a year ago.
Good companies with right corporate governance are attracting more money right now, says Ajay Jaiswal, president, strategies at Stewart & Mackertich Wealth Management.
“Investors should not invest in firms with even slightest issue of corporate governance. This kind of a market provides opportunities to pick quality stocks. Talks of slowdown in various sectors have also contributed to this fall. We like Tata Global Beverages, Praj Industries and select PSU names,” he said.