Indian market is up over 22 percent and scaled the fresh peak in the year 2017 but not every stock became a multibagger or outperformed the benchmark index. The S&P BSE Sensex rose over 32K while Nifty50 rallied over 10,000 mark for the first time last week.
In the Nifty 500 index, almost 70 stocks gave negative returns of up to 80 percent so far in the year 2017.
Among the laggards of 2017, Shilpi Cable slipped over 80 percent followed by Videocon Industries which was down 76 percent, and Nitin Fire plunged 74 percent as of data collated on 25 July 2017.
Other stocks which have taken a beating include names like Religare Enterprises, Inox Wind, Lupin, Divi’s Laboratories, Indoco Remedies, Dr. Lal Pathlabs, Ajanta Pharma, Glenmark Pharma among others.
On the other hand, top stocks which have made money for investors include names like JP Associates, Avanti Feeds, Future Retail, Indiabulls Real Estate, Rain Industries, Adani Transmission, Dilip Buildcon, Unitech, Sterlite Technologies, Escorts etc. among others.
Most of the pharma and IT stocks featured in the top 20 list of stocks which gave negative returns so far in the year 2017 largely on account of domestic as well as global headwinds.
“The said stocks have not performed well despite market has made a record high in July 2017. It is mainly because of poor fundamentals of some of the companies, change in government policies (both domestic and overseas), and prising pressure on the companies owing to intense competition etc.,” Sanjeev Jain, AVP - Equity Research at Ashika Stock Broking Ltd told Moneycontrol.
“We believe that investors should take this laggard as an opportunity to invest for long term. The companies which sound fundamental and future prospect looks bright may be a pick at these levels,” he said.
The above list comprises of all quality names which gave multibagger returns especially the pharma names back in the year 2014-15.
The liquidity flow continues into Indian markets both from global investors as well as from domestic investors which is pushing valuations of most of the stocks slightly ahead of their long term averages.
But, the absence of liquidity in names clearly highlights a structural problem and investors should initiate fresh money after doing a detailed analysis.
What should investors do with laggards?
Analyst suggests that most of the correction in stocks have already taken place and the sectoral headwinds which pharma and IT stocks are facing are mostly over.
“Most of the stocks in the list are either from pharma or energy (or energy related) sector. Both the sectors have underperformed due to sector specific issues and we have been negative on them for almost a year now,” Gaurav Dua, Head of Research, Sharekhan told Monecontrol.
“However, these stocks have a correction (both price and time wise) and one can start looking selectively at pharma space whereas we see value in the gas value chain in the oil& gas sector,” he said.
But, there are some stocks which are struggling because of their own structural problem which investors should avoid at the given point in time.
“Investors should stay invested only in Companies with good management and with attractive business models. It is better to avoid buying the stock which is largely corrected if the quality of management is not good or promoters have heavily pledged their shares,” Anita Gandhi, Whole Time Director at Arihant Capital Markets Ltd told Moneycontrol.
“In case of Companies like Videocon Industries, the NPA problem is yet to be resolved & therefore investor should stay away till the time clarity emerges,” she said.
Gandhi further added that few stocks like Religare Enterprises had experienced selling due to pledged share sale. ONGC & Oil India had pressure on earnings due to falling crude prices.