RINGSIDE VIEW. Beware of bear traps in bull territory

Is everything hunky-dory in the market? The BSE Sensex and the Nifty-50 are at their all-time highs; mid- and small-cap indices are on song, setting new records every day. Even the once-feared metal, realty and infrastructure sectors have boarded the ‘bull’et train.

But there’s been some strange goings-on in these stocks, which should occasion caution in investors.

The stock, which was ruling at ₹252.7 on April 13, hit the lower end of the circuit on Friday (June 2). The company cancelled its board meeting on April 18 due to lack of quorum and rescheduled it to April 25, but that too was cancelled for the same reason, and no new dates have been announced.

On April 29, the company informed the exchanges that an overseas bank has filed a petition under Insolvency and Bankruptcy Code. The matter was listed for hearing at the NCLT on May 4. Surprisingly, on May 11, it informed the exchanges that the board would meet on May 28 to consider a bonus issue. On the same day, the company informed the exchanges of the resignations of its Company Secretary and Chief Financial Officer.

On May 16, it said the decline in the share price was not on account of changes in the business outlook, but purely out of a feud with a family friend/investor, who at present holds a stake (directly/indirectly) in the company. Due to the differences, it said, shares held by the investor had been offloaded in the open market at rock-bottom prices with the intention to cause panic.

For 10 days in a row, shares of the company have hit the lower end of circuit and its market capitalisation plunged by over 63 per cent on concerns over its failure to repay loans. This is on the back of reports that Dena Bank, Central Bank of India and PNB had classified Videocon’s account as a bad loan. The company has over ₹40,000-crore debt on its balance sheet.

The telecom stock, which was sailing high a couple of months ago on reports of a foreign investor taking a stake and of asset sales, has gone into a tailspin amid worries about the company’s dollar-denominated debt.

Moody’s Investor Service said on May 11 that Reliance Communications remains exposed to currency mismatches and does not have enough foreign exchange revenue to mitigate risks arising from currency fluctuations. Subsequently, CARE Ratings and ICRA downgraded the stocks in late May.

Default worries have been dragging the stock in recent days from a high of ₹32.95 to ₹20.65 currently.

Shares of this Hyderabad-based company came under pressure in the past four days, losing almost 14 per cent after the arrest of two directors of Trinity Infra Ventures, which is part of a promoter group. In a notification to the exchanges, the company said two directors of the promoter company, which is involved in real estate business, have been taken into judicial custody in connection with a dispute over a land matter.

The fact that each of these stocks is from a different sector and the somewhat outlandish reasons that account for their decline indicate that even in bull markets, investors are vulnerable to big losses. When governance issues crop up, and they do so in myriad ways, it’s time for the buyer to be wary.

Owners of such dark-horse stocks should know when to sell. Watch out for danger signs such as lower dividends, delays in filing results, changes in ownership and bulk deals, and rating downgrades. Bailing out with a stop-loss may have helped investors in the above stocks shield themselves somewhat.

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