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No takers for Covid-19-hit stocks in recent rally even at dirt cheap prices

Data showed three of every five BSE500 stocks have underperformed the index since March 24.

, ETMarkets.com|
Last Updated: May 29, 2020, 12.30 PM IST
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Retailers Aditya Birla Fashion and Retail, Future Retail and Shoppers Stop have fallen 30-34 per cent since March 24.
NEW DELHI: The broader index BSE500 has risen 21 per cent from its March 24 low, trimming its year-to-date losses to 24 per cent. But there has been no takers for many of the Covid-19-hit stocks, which have fallen up to 50 per cent since then, making investors wonder how much more downside may be left in them.

Data showed three of every five BSE500 stocks have underperformed the index since March 24, with 21 stocks falling 20-50 per cent during this period. While most stocks look cheap, analysts say the risks remain high and investors would do well to avoid these counters for now.

With a 49 per cent fall, Chalet Hotels has been the worst-performing BSE500 stock since March 24. For the year to date, the stock is down 71 per cent.

Foreign tourists, whose arrivals have stopped completely, account for more than 50 per cent of Chalet’s guests.

"Companies with a high share of foreign guests, the luxury segment, will be the last one to see demand revival, not to mention their susceptibility to price contraction to attract guests," Edelweiss Securities said in a recent note.

LemonTree, with a 33 per cent fall, has been the sixth worst performer in the BSE500 pack since March 24. It is down 74 per cent year-to-date. Edelweiss said the hotel chain is burdened with high leverage and dependent on borrowings to sustain interest and capex for the coming three years.

Intense selling in the hospitality stocks continued even at their 52-week low enterprise values per owned/leased room.

Multiplex operator PVR has tanked 38 per cent since March 24 and 71 per cent year-to-date. As producers are facing cost pressures, some films are being released over the OTT platform. Films that are stuck at the post-production stage are also looking at this option, said Equirus Capital.

"This poses a risk for movie exhibitors in the short run, as the theatrical window is being bypassed," the brokerage said.

PSU banks and small private sector banks have also failed to recover in the recent rally. Bank of Baroda, RBL Bank, DCB Bank and PNB, and NBFCs such as Cholamandalam Financial Holdings, Shriram City Union Finance and Repco Home Finance have fallen 22-33 per cent since March 24 even as some parts of the market recovered.

"NBFCs are still licking their wounds and small private banks are trying to focus on survival. PSU lenders are going through mergers. Whatever limited credit growth cam happen in the economy now is actually going to come to some of the larger private banks," Neelkanth Mishra of Credit Suisse told ETNOW.

Retailers Aditya Birla Fashion and Retail, Future Retail and Shoppers Stop have fallen 30-34 per cent since March 24.

"The retail sector having taken a big hit in the current Covid-19 crisis, the impact on retailers will continue much beyond the lockdown, as the weakness in spending is likely to prolong," said Motilal Oswal Securities.
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