While all of these stocks have underperformed the Sensex in 2013, smaller PSU banks, highly leveraged companies from interest-rate-sensitive sectors and smaller metal producers have fared the worst. These stocks are down down between 20% and 70% in 2013, while the Sensex has gained 7% year to date to 20767.88 -- just 240 points shy of its all-time high.
Market experts believe that that lower earnings visibility and balancesheet stress across such companies jave capped their stock prices.
Given the current growth-inflation dynamics, the earnings visibility of these companies is extremely low. Not surprisingly, such stocks are trading at very low levels as investors are wary of a turnaround in the fundamentals of these businesses anytime soon, said Piyush Garg, CIO at ICICI Securities.
The majority of the laggards belong to the construction, infra, power generation, capital goods and realty space. Collectively, about 36 stocks from these sectors have, on an average, lost nearly 42% of their value this year.
Stock prices of JP Associates, Lanco Infra, GVK Power, and IRB Infra have nearly halved this year due to the large amount of debt on their balance sheets. Higher input costs stemming from a weak rupee and elevated interest expenses are also expected to further weigh on operating profits.
The respective market caps of these stocks is less than their individual debt levels as of June 2013. The level of debt ranges from R60,000 crore to R4,000 crore across different companies.
While companies like DLF, GMR Infra and JP Associates have made efforts to reduce debt by selling assets, the Street seems to have only taken note of GMRs efforts, given that the stock has rallied 15% this year.
If you look at some of the highly indebted real estate and infrastructure companies, they are struggling to meet their interest payments... Even as they resort to asset sales, they have to part ways with good assets in the current environment which further affects outlook on their future earnings, added an expert.
The challenging business environment is also expected to hit public sector banks as non-performing loans rise further. Six PSBs Indian Bank, United Bank, Bank of India, Union Bank , IOB and Punjab & Sindh Bank have been beaten down because of these fears, with the stocks losing 40% to 60% of their value this year.
Due to weak economic activity and regulatory hurdles, 11 mining and metal companies, including PSUs like Coal India, NMDC, Nalco and SAIL, have also significantly underperformed the market.