The BSE stock exchange's benchmark index, the Sensex, has been creating records of late but this euphoria is yet to rub off on the broader market. Shares of a little more than half the country's top 500 companies are still trading below their peak of January 2008, when the index hit new highs before sliding.
About 54 per cent of the stocks in the BSE 500 index are trading below their 2008 levels. Some have lost nearly their entire valuation in these six years. The percentage is even higher in the past four years, with about 60 per cent below the 2010 levels.
A majority of these stocks belong to mid-cap companies in infrastructure sectors such as capital goods, realty and power. Growth in these companies has remained stunted because of weak economic growth, policy paralysis and poor investment pick-up in six years, analysts said.
"If we are looking to segment these stocks, we would find these are where there were corporate governance issues, where the debt to equity ratio was high and where the cost of servicing debt was high, even when the Ebitda (earnings before interest, taxes, depreciation and amortisation) margins saw a rise," said Sandeep Singal, co-head of institutional equity, Emkay Global Financial Services.
With the gross domestic product (GDP) growth rate halving over six years to an annual 4.5 per cent from about nine per cent in 2008, analysts said it was little wonder that mid and small-cap stocks had given any returns.
In these six years, the BSE realty index has fallen by close to 90 per cent, the BSE power index by 65 per cent and the BSE public sector units and capital goods indices by 44 and 42 per cent, respectively. The Sensex has gained a little over 7.5 per cent during the period; it touched a record high of 22,023 on March 10 this year.
Analysts said the inability of these stocks to recoup had further led to weaker retail participation. Many retail investors continue to hold some of these shares. "Investor confidence has obviously gone down in these stocks because structurally nothing has changed in these companies," said Singal. Retail participants, main investors in this segment, have largely been absent from the equity markets since 2008.
The stock topping the list is grounded Kingfisher Airlines, which has lost nearly all its valuation, falling from about Rs 280 a share to Rs 2.5. Among the 21 stocks which have declined by more than 90 per cent are Suzlon Energy, Unitech, state-owned MMTC and Bajaj Hindusthan.
The benchmark indices in these six years have seen heavy volatility. The BSE Sensex has declined to 17,000-levels from 21,000-levels and is back to crossing the 21,000-levels. But despite these intermittent gains, most small and mid-cap stocks have remained subdued or even seen further decline.
"Each time the market moves up, it moves up for a different reasons. Typically, if you look at each rally in the last two-three cycles, it's not the same set of stocks which move up every time. Not all beaten-down stocks can participate in the next rally that happens," said Arun Gopalan, vice-president (research), Systematix Shares & Stocks.
Even among the large-cap stocks, only some have participated in the recent rally. Apart from the turnaround in the US and European economy, it is the pre-election frenzy that has fuelled the current rally. Participants said with hopes of revival in the policy formation process and a stable government at the Centre, stocks which had till now underperformed the indices might soon start seeing investor interest.
"We are now in uncharted territory as the Sensex gains new highs. FIIs (foreign institutional investors) are clearly still pumping in money into the engineering and PSU (public sector) stocks, on the conviction that the reforms process will start once there is a good, stable government at the Centre," said Mayuresh Joshi, vice-president and head (institutional sales), Angel Broking.