Sensex bounce leaves investors smiling, but 2008 trauma remains

Few in the market would doubt the severity of the market fall, post Lehman crisis in 2008. But for investors who held on to their stocks, the sharp recovery over the next two years saw them plough back a large chunk of their wealth. The benchmark BSE Sensex almost touched the January 2008 high in November 2010. Though many companies made up some of their lost ground, there are quite a few which are now trading either near the lows of 2008 or below it.

Out of the stocks where derivative trading is allowed, 18 of them are trading either below the 2008 level or close to it. There is no clear sectoral trend in these stocks. However, the ones that feature in this list mainly belong to telecom, infrastructure, real estate and power.

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[caption id=“attachment_73874” align=“alignleft” width=“380” caption=“Out of the stocks where derivative trading is allowed, 18 of them are trading either below the 2008 level or close to it. Reuters”]  [/caption]

Among the telecom stocks on the list are public sector MTNL, Tata Communications - the erstwhile VSNL - and Reliance Communications. The reason why these companies are below their 2008 valuations is all of them are running up losses compared to their profits in 2007-08. Intense competition, high infrastructure costs and high debt have all impacted these companies in some form or the other.

Among infrastructure companies, Punj Lloyd, GMR Infra and Patel Engineering are the ones whose stocks have performed below par. While poor show, auditor qualification and disputed claims have hit Punj Lloyd, GMR Infra has been affected by a tweak in government rules. GMR Infra has not been able to monetise on the Delhi Airport real estate. Its poor financial performance and continuing losses have kept investors away from the stock. Increase in construction costs, slow orderbook build-up and high debt have played their part too and taken the sheen off Patel Engineering.

Apart from the general slowdown in the sector due to various reasons, real estate companies like IB Real Estate and Unitech have been laid low because of governance issues. Similarly, poor execution and unavailability of fuel have proved to be a bane for power stocks like Reliance Power and Adani Power. Suzlon was beaten down due to a huge debt position and issues relating to its product and its European acquisition.

For India Cements, governance issues remain a challenge while high debt has raised questions over the viability of both GTL and GTL Infra. Even Educomp has hit new lows amid governance woes, IT raids and questionable accounting practices. Even Kingfisher Airlines is getting the blues as it’s buffeted by high costs of fuel, rising competition, a high cost structure and a high debt load.

Two stocks from the information technology sector are also trading at low levels. Both 3i Infotech and On Mobile have been punished by investors for a mediocre show in a sector which has recovered slowly since the Lehman crisis. Moser Bear has turned weaker owing to a change in business plans and poor performance on the financial front.

Very few of the stocks discussed above have a quick fix solution to regain lost ground. Fundamentals in some of the cases do not justify a fresh entry while in other cases, poor governance has led to a complete loss of faith.