The broad market decline that began in November 2010 sports a long list of losers.
Between that peak and now, the BSE 500 has lost 23 per cent. True, very few have bottomed and hit lifetime lows.
But about six in every ten stocks in the BSE 500 have had sharper falls than the broad market in this period.
What is worse, a good number of these stocks were also battered in the market crash of 2008-09. So is it just a case of giving a dog a bad name and hanging it?
No. Stocks which have been underperforming broader markets have grappled with a host of problems, such as governance issues, slowing sales, declining profits, and so on.
Losing again
Among the stocks which have seen steep falls from November 2010, close to half had already suffered stiff declines in the previous 2008 bear market.
For instance, KEC International has fallen 43 per cent since November 2010. The stock had been an underperformer earlier too, losing 86 per cent in the 2008 crash.
Similarly, Dena Bank has shed 39 per cent since November 2010, having already lost 68 per cent in the 2008 decline.
But in between the two downturns, markets did enjoy a great run.
The BSE 500 index almost tripled. So, for many of the stocks again tumbling since November 2010, some solace could be had from the scorching run they had when markets were going good.
Continuing with the above examples, KEC and Dena Bank had more than quadrupled in price by the time the ongoing market decline started.
Grappling with growth
The losers list is long, but markets appear to have, for the most part, punished those with poor financials or those with governance issues. About three-quarters of the losing stocks have seen shrinking profits or faltering growth.
GE Shipping, for example, has seen an annual 15 per cent earnings decline from 2009-10 onwards, while seeing almost no sales growth. The stock has lost 29 per cent since November ’10.
Similarly, while Patel Engineering did manage a compounded sales growth of 9 per cent over the past three years, net profits fell 38 per cent on high costs. The stock price reflected the poor performance, sinking 79 per cent since November.
Blue Star, Videocon Industries, Pantaloon Retail are other examples where rocky business conditions were reflected in stock prices taking a hit.
But markets did mete out a rather unfair treatment to some stocks. For instance, with industry-wide problems hitting sectors such as real-estate, some stocks suffered the unfortunate side-effect of the gloom surrounding their peers.
The stock of Mahindra Lifespace, for instance, has shed 31 per cent as the realty sector bowed down under multiple woes. Its good profit and sales growth has largely been overlooked.
Other stocks became the victims of an over-reaction to bad news. Thermax’s recent sales slowdown completely overshadowed previous good performance, with the stock losing almost half its price.
Other examples of sound fundamentals being overlooked include Polaris Financial, Kalpataru Power, and Allahabad Bank.
Sectors hit
In terms of sectors, fertilisers, airlines, realty and infrastructure have been the worst hit.
With the airlines sector facing multiple headwinds, it’s no surprise that all airline stocks have fared much worse than broad markets, as was the case even during the 2008-09 decline.
Persistent problems plaguing realty and infrastructure stocks led them to be heavy losers both times.
But cement stocks ruled strong, undeterred even by the recent ruling requiring cement companies to pay fines for cartelising. But few sectors managed to turn around fortunes and emerge outperformers in the current market decline.
The auto ancillary sector was the lone one here — tyre stocks especially, which were big losers in 2008-09, uniformly beat markets since November ’10.
Also read: >Stocks on a high but still attractive