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India's largest microfinance company, a leading private sector power producer and the world's leading exporter of cut roses share a common trait. These were some of the companies that saw their stock prices pummelled by 80-85 per cent in 2011.
The top losers of 2011 show that it wasn't sector or market cap preferences that swayed stocks. Instead, instances such as SKS Microfinance, Lanco Infratech and Karuturi Global showcase how unforgiving markets have been with companies with high debt, regulatory hurdles or even a whiff of ‘governance issues'. The 10 biggest losers in the CNX 500 index lost a whopping 79-92 per cent in value while the index shed 24 per cent.
De-rated
A dispute within its top management and tighter regulation flagged off the de-rating of SKS Microfinance that saw its price-earnings multiple fall from 20 times to barely 7 times over a year.
A lawsuit impacting its Australian acquisition, interrupted gas supply for a project and debt worries proved to be the undoing of Lanco Infratech, now trading below its book value.
In the case of Karuturi Global, ambitious plans to diversify into Ethiopia ran into rough weather. Stocks of DB Realty and Unitech shed 70-75 per cent, as promoter group companies faced investigations related to the 2G scam.
As interest rates climbed steadily upward, companies with high debt on their books such as GTL and GTL Infra, 3i Infotech and Patel Engineering lost 75-92 per cent.
No hope in store?
With stock prices of these companies taking such a big tumble, should investors average their positions at these prices? They shouldn't, say market participants. In fact, they hold the view that some of the worst performers this year may have suffered a permanent de-rating.
Retail investors, feels Mr Chokkalingam, Group CIO, Centrum Wealth Management, usually do not have required courage to book losses. But he advises shifting to stocks of companies which are cash-rich, offering good dividend yields and earnings record.
Mr Rikesh Parikh, Vice-President – Equities at Motilal Oswal Securities, says that even if broader markets do recover and move to higher levels, these stocks may not get back to their highs.
Making money out of these underperformers is not likely, he says.
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