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Over the past one-and-half years, the number of stocks trading below their respective face value has increased 29 per cent after a sharp correction in stocks of small-cap companies.
Illustration: Uttam Ghosh/Rediff.com
Vodafone Idea tumbled 29 per cent to hit a new low of Rs 6.56 on the BSE on Monday, after the telecom services provider posted a consolidated net loss of Rs 4,874 crore for the quarter ended June 2019, due to weak revenue.
The fall took the counter below its face value of Rs 10.
Besides Vodafone Idea, there are as many 682 stocks (21 per cent) out of total of 3,216 stocks traded on the BSE, including Reliance Power, Reliance Communications, IFCI and United Bank of India that are currently quoting below their respective paid-up values on the BSE, data show.
Over the past one-and-half years, the number of stocks trading below their respective face value has increased 29 per cent after a sharp correction in stocks of small-cap companies.
On January 15, 2018, there were about 529 stocks, or 15 per cent of total stocks, that traded below their respective face values.
Since then, the S&P BSE Smallcap index which hit an all-time high of 20,183 points, has corrected 35 per cent to 13,060 levels on Friday.
In comparison, the S&P BSE Midcap index has slipped 24 per cent, while the benchmark S&P BSE Sensex has gained 9 per cent during the same period.
Analysts say there is more pain in store for small-caps as there is not much earnings visibility yet for companies in this segment.
Investors, they suggest, will be better of avoiding this space for now.
“The small-caps have been beaten down badly. On the other hand, there are select large-and mid-caps that are available at an attractive valuation.
"Among the lot, investors should focus on such counters rather than the small-caps where the pain in terms of earnings recovery still persists,” advises Gaurang Shah, head investment strategist at Geojit Financial Services.
Vodafone Idea hit a new low on Monday, and has tanked 90 per cent in past one-and-half years from level of Rs 63, on weak earnings and high leverage. Anil Dhirubhai Ambani-led three - Reliance Communications, Reliance Naval and Engineering and Reliance Power - are currently trading below less than Rs 5 each on the BSE.
These companies have seen a market value erosion of 93 per cent - 95 per cent from January 2018 levels.
DB Realty, Petron Engineering, JBF Industries, Bombay Rayon Fashions, IL&FS Transportation Networks, IL&FS Engineering and Construction Company, Rolta India and IFCI are among the other notable companies that have seen the market price of their shares fallen below face value of Rs 10 each.
That said, analysts see no meaningful recovery in corporate earnings over the next few quarters as well.
In this backdrop, they expect the markets to remain volatile with a downward bias.
“On balance, the risks to earnings remain tilted toward the downside, given the still weak underlying demand scenario and lack of private capex recovery.
"The earnings growth recovery in FY20 is likely to be narrow and predominantly led by financials, even as global cyclicals drag and consumption-oriented sectors post deceleration in earnings.
"We believe Nifty valuations are rich and offer limited room for re-rating,” wrote Gautam Duggad, head of Research at Motilal Oswal Financial Services in a recent report.
