High-debt cos’ scrips suffer in Q1 of 2018

The first quarter of calendar year 2018 has not been too good for Indian investors, with benchmark indices reversing sharply in February.

While the large-cap indices escaped with flat YTD returns, thanks to the rally in January, the cut in CNX Mid- and Small-cap indices was deeper at 7.4 and 10.2 per cent, respectively.

A look at the list of losers in this period shows that investors have singled out companies that were saddled with large debt to dump in this period.

The market fall has wreaked havoc among the stocks forming part of CNX 500, with 373 of these stocks (75 per cent) ending in the red.

Almost half the stocks in the index declined more than 10 per cent, while 81 stocks have lost more than 20 per cent so far this year.

Debt woes

With the country turning its focus on the burgeoning stressed assets of the banking sector and with the search for a closure to the debt woes of Indian companies gaining momentum, companies defaulting in debt servicing had to receive the stick from investors.

For instance, the stock of JBF Industries has lost 51 per cent of its value in 2018. The fall in the stock price began last August after India Ratings downgraded the company’s ratings to IND D from IND BBB- for delays by JBF Group in servicing its debt obligation.

Similarly, the fall in the shares of Hindustan Construction Company (HCC) was triggered by news reports indicating that its subsidiary firm Lavasa may head for bankruptcy. HCC has however, clarified that the news report is wrong and the company is working with its lenders to arrive at a comprehensive debt recast solution. But still, the stock is among major losers this year, down 40 per cent.

ADAG & IFCI too

Debt concerns have dragged Reliance ADAG companies too. Infrastructure lender IFCI filing a bankruptcy case against Reliance Naval and Engineering in November last year has dragged the stock 41 per cent lower. Stocks of other group companies Reliance Communications and Reliance Home Finance are down 38 per cent and 33 per cent, respectively.

The insolvency case filed against Bhushan Steel under the Insolvency and Bankruptcy Code (IBC) has taken this stock price lower by 36 per cent.

Scam-hit banks

As the debt-laden companies are getting hit on one side, the country’s move to clean up the banking system from non-performing assets (NPAs) and other scams are keeping the banking and financial sector under huge pressure. Among them Punjab National Bank has lost the most after the ₹11,600-crore scam unveiled in February. The stock has plummeted 41 per cent so far in 2018. Lakshmi Vilas Bank, down 38 per cent, and Bank of India down 35 per cent, are the other banks in the list of top 20 stocks that have fallen the most this calendar year.

Production woes

Fundamental factors have become an additional concern for commodity stocks in the sugar sector. Concerns related to record output have kept the stocks in the sugar sector under more pressure. As a result, sugar prices have slumped about 10 per cent from around ₹3,300 per quintal to ₹3,000 per quintal. This has dragged the stocks of Balrampur Chini Mills and Bajaj Hindusthan Sugar by 45 per cent and 37 per cent, respectively.

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