A casual conversation with a sub-broker a few weeks ago revealed the sorry state of affairs at brokerages. Despite almost half of the NSE-listed stocks ruling below or near 2008 low levels, and many mid- and small-cap stocks available at an “affordable” price, not a single customer called me for “value” enquiry, he lamented.

However, last week, the recovery in metal pack did raise some hopes among retail investors and trading community, indicating that the worst may be over for beaten down stocks.

Some of the shares from metal, capital goods, realty, infrastructure and banks have lost almost 75-90 per cent from their peak. In fact, brokers were sending messages like “what will you get for Rs 90? — Infra pack: HCC + IVRCL + NCC + GVK + GMR + LITL (Lanco Infra) + Madhucon + Punj Lloyd = Rs 90!”

High debt on their books, slowdown in orders, inability to execute projects, falling rupee and corporate governance issues were some of the reasons why stocks in these sectors were beaten down.

So if a recovery happens then betting on stocks that have been butchered in the last couple of years may yield better results, is the theory doing the rounds in the market.

But Dalal Street analysts are not warming up to the idea of value buying now.

“Sentiments of investors on India have turned negative and they seem genuinely concerned of the risk of the policy mistake in order to curb the currency volatility. Our latest fund managers’ survey shows that the Indian markets are now less loved than they were three months back. However, these sentiments are still some distance away from the extreme bearishness of the past,” said Bank of America-Merrill Lynch.

According to an analysis by India Infoline: “India Inc’s debt has risen at an unprecedented pace in the past six years and debt-servicing ability of companies has weakened, as reflected in falling interest coverage and dwindling cash flows.”

Of the 749 listed companies India Infoline analysed, only 176 companies or 23 per cent are net-cash companies while 573 companies are net debt companies, having cumulative net debt of Rs 17.7 lakh crore.

In a recent research report, Credit Suisse analysts said: “One thing certain about the Indian macro economy right now is that it is hard to be optimistic. The current feeling of gloom is seemingly all pervasive as business and consumer confidence continue to shrink, the hard data continue to soften, the rupee faces substantial pressure, the RBI tightens liquidity and political factors remain unhelpful.”

Flagging growth outlook for the Indian economy, aggravated by weakening rupee and diminishing prospects of interest rate cuts in the near term, intensify the pain of high debt, India Infoline analysts observed.

According to India Infoline research based on net debt to annual operating cash flows, it would take 16 years for companies in the industrial sector and 11 years each for companies in the utilities and financial (mainly real estate) sectors to repay their current debt.

So if anyone is thinking of bottom fishing, they better check the debt level of individual companies before contemplating any such moves.

>badrinarayanan.ks@thehindu.co.in

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