Companies undergoing financial turmoil miss the Dalal Street party

The stock markets witnessed one of its biggest-ever celebrations on Friday. However, not all were invited. Companies undergoing financial turmoil or are loss-making had little to cheer. 

Sample this: In the BSE 500 universe, there are 48 companies that reported losses for the financial year 2018-19. Shares of these companies rose an average 2 per cent, even as the benchmark Sensex jumped more than 5 per cent, in what was its biggest ever gain in a decade.  

Majority of the trouble-hit companies ended the day in the red, even as investors lapped up shares across the board. 

Besides stressed companies like Dewan Housing Finance and Jaiprakash Associates, share prices of loss-making companies, including Network 18 Media, Hathway Cable, Reliance Power and Wockhardt, declined sharply. 

Market players said firms which are unlikely to report profits in the near future don’t have much to look forward to. They say the move to slash corporation tax will primarily benefit those who are showing strong growth.  

Moreover, companies with high debt could suffer as bond yields were seen edging higher following the government's decision to compromise on fiscal prudence. 

“The government is not willing to support anyone who is in trouble because of the wrong decisions of the management,” said Siddhartha Rastogi, Managing Director, Ambit Asset Management. 

“Maybe on a need to need basis, banks will try to see where debt can be converted into equity. Otherwise, the government is not going to give out any incentives for these companies,” he added. 

Some believe the move to lower taxes will make the market even more polarised with the strong getting more stronger and the weak staring further down the barrel.

 “Liquidity has to improve; otherwise, the economy will take more time to revive. If there are companies which are making losses and if they have high debt-equity, those companies might take more time to get out of the cycle. Large caps and quality midcaps will do well,” said Abhimanyu Sofat, Head of Research, IIFL.

Siddhartha Khemka of Motilal Oswal said, “The market will continue to stick with high-quality names. There is a concern in terms of  growth in the economy; hence, those companies which have posted losses will take time to improve their financials.”