Dalal Street has always been a place of action. The recent past has been no exception.
Right from the PNB scam, the new LTCG (Long Term Capital Gains) tax, the liquidity crisis, the crude oil prices, right up to the trade war and the most recent fiasco in the Zee entertainment stock; calling these times eventful is an understatement.
When all this action marries into the reality of the trading floor, some stocks clearly float their way into the limelight. Here is a look into the 10 most talked about stocks in recent times.
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10 most discussed stocks
1. Jet Airways
The share price of the second largest airline in India has fallen more than 65% in the past year. With a heavy debt of Rs. 8052 Crores in its books, the airline has been defaulting on its debt obligations and has been downgraded by various credit rating agencies. The ever burgeoning fare war and the unfavorable rupee movement have only added fuel to the fire.
Though there were talks about a stake sale in the loyalty program (Jet Privilege Pvt. Ltd.) and offers from the Tata Group, they seem to have reached an impasse over the role of majority stakeholder and founder chairman, Naresh Goyal.
With the airline now classified as a Special Mention Account, the lender group headed by SBI is also under immense pressure to resolve this under the IBC timeline. Hence, the prospect of dilution of Naresh Goyal’s stake and Ethiad’s infusion of further equity seems quite palpable.
Amidst this sweltering crisis, the fact that the airline has recently slashed prices by 50% reflects the ruthless competition in the industry. Hence, the question is not about whether this issue will be resolved. The question is about the sustainability of the resolution.
2. DHFL (Dewan Housing Finance Corporation Limited)
On 21st September 2018, the DHFL stock price plummeted 44% in a single day and has lost 65% of its market cap since then. Opposed to what the timing suggests, DHFL has nothing to do with the IL&FS crisis and its exposure to IL&FS is zilch. But the risk aversion born out of the IL&FS crisis a reasonable candidate for consideration.
It all started with the reports that said that DSP Mutual Funds was selling DHFL’s 1 Year Commercial Paper (CP) due in June 2019 at a yield of around 11%. DHFL’s commercial papers are rated highest at A1+. However, the sale by DSP Mutual Funds at such discount cast serious doubts about the NBFC’s ability to raise funds at competitive rates. Fueled by the IL&FS debacle, skepticism reached new heights and the stock price got battered.
The NBFC has issued several clarifications around its ALM (Asset Liability Management). CRISIL report in November also revealed that post repayment of its borrowings, DHFL’s reserve liquidity stands at Rs. 4000 Crores. Further DSP Mutual Fund also released a clarification that its sale was in response to rising interest rates and not in view of DHFL’s creditworthiness.
All said and done there is some method to the madness as the prices continue to move in the downward trend even to the day. The series of events following the CP sale by DSP Mutual Fund has pushed the NBFC to a situation where it has reduced access to generation of funds but has to face upcoming debt obligations.
3. Hindustan Unilever Limited HUL
HUL has enjoyed limelight in the recent past, more often than not, for the right reasons. The company has reported double-digit growth for the fifth consecutive quarter cushioned by the rising rural demand.
Being a market leader, the consumer goods company has been working towards premiumization of a lot of its products. It has shut down 12 of its 40 distribution centers and plans to reduce it to 20 in the next three-four quarters, as part of its optimized supply chain strategy.
The proposed merger with GSK’s consumer arm is also welcomed by analysts alike, for the perceived synergy benefits.
Recently the company has also seen troubled days with the imposition of Rs. 383 Crore penalty on HUL for not transferring the benefits of the GST to the ultimate consumer and the matter is currently sub judice before the Delhi High Court. The perceived arbitrage with the share swap in GSK Con merger may also not be too favorable for the stock.
4. Yes Bank
In the backdrop of various corporate governance issues, the Yes Bank stock has been taking the downward streak in recent months.
In the last two financial years, RBI has found divergence in the NPA figures that were reported. This seems to have raised apprehensions about the governance at the bank and is said to be the reason behind RBI’s rejection of Rana Kapoor’s extension as the CEO and MD.
The feud between Rana Kapoor and Madhu Kapur who are co-promoters of the bank, over the appointment of nominee director has also indicated the need for a more professional leader to manage the bank.
The bank has now replaced Kapoor with Ravneet Gill former CEO of Deutsche Bank’s India operations and there seems to be a slight improvement in the share price. With a lower than estimated results in Q3 2019 and the simmering governance issues, the leadership of Gill will write the destiny of the bank.
5. HDFC Bank
The largest private lender in the country has been showing consistency in performance with strong fundamentals.
The bank’s high exposure in retail loan segment has been providing it a robust revenue stream. Coupled with this, healthy CASA (Current Account Savings Account) deposits, conservative NPA and CRAR (Capital to Risk-weighted Assets Ratio) figures make this one of the best quality stocks in play.
The Q3 2019 results have surpassed estimates, with profitability up by 22% compared to the same quarter last year. The loan book has grown YOY by 24% and the non-interest income by 24%.
It would be relevant to point out the stress in NPA figures caused by the agri loan portfolio. The farm loan waiver seems to have also impacted credit quality in this portfolio. With the upcoming elections, the exposure in agri loans has been risky.
6. Reliance Industries Limited
In line with its steady performance in the past, the blue-chip has been pushing the benchmark indices up in recent days. With business interests starting from oil to telecom to the retail segment, the conglomerate has shown good 3rd Quarter results.
The acquisition of a stake in DEN and Hathway, the IMO 20 (an International Maritime Organization Policy), the new e-commerce platform for the retail segment, Jio’s phenomenal performance etc., have all been good news for the conglomerate.
It would be pertinent to note here that increased capex and high debt in books have been raised as matters of concern across the board. In this light, the company’s telecom arm has made announcements of demerger certain assets (Towers, fiber assets) into separate companies which is expected to bring consolidated debt of RIL down by Rs. 65000 Crores. However, details of the scheme are not out yet and it would be presumptuous to assume any advantage arising therefrom.
7. Sun Pharma
All the recent furor about the Sun Pharma stock has been around a whistleblower complaint filed with the SEBI. The uncertainty around governance issues and insider trading which is alleged in the complaint have taken a real toll on its market performance.
One of the major allegations is regarding Aditya Medisales Limited (AML). AML was a shareholder approved, related party distributor of the domestic formulation business. It was alleged that advances were issued to AML and routed to promoter owned enterprises. Later, Sun Pharma in its clarification stated that it will transmit the domestic formulation business from AML to its wholly owned subsidiary.
Allegations have also been leveled with respect to insider trading during the Ranbaxy acquisition. This again was dubbed by the company as being related to a technical issue with the trading window closure.
As a slew of allegations including the ones stated above looms at large, uncertainty about corporate governance and internal control at Sun Pharma is only getting obscure and this uncertainty is certainly doing no good to its market performance.
8. Kotak Mahindra Bank
The private sector lender has been one of the best-performing stocks in recent times. The news from the third quarter numbers has further added to this momentum.
The bank’s asset quality has improved and is one of the most competitive in the market. With a strong CASA base of almost 50% and a healthy Net Interest Margin (NIM) of 4.3%, the bank has shown strong business performance.
The low bad loan figures and robust business performance seems to have driven the premium at which the stock is trading.
Amidst all the bash and spree of its growth, the issue of promoter shareholding is one that has been hanging around for a while. In an effort to improve governance, RBI has mandated the reduction of promoter shareholding in banks below 20%.
In furtherance of this rule, promoter and MD Uday Kotak sold his perpetual preference shares, which the regulator has refused to accept as valid dilution of shareholding. After rejecting Uday Kotak’s plea for interim relief, the Delhi High Court which is seized of the matter will take the final call.
9. Tata Motors
The Tata Motors stock has been on a downward streak for a while now. The poor earnings performance and downgrading by credit rating agencies have only aggravated the negative sentiment.
The luxury car making arm of the company, Jaguar Land Rover (JLR) has been an area of serious concern for quite some time. Amid challenging tariff changes and trade tensions, sales in China has fallen by 50%, marking decline for the 7th consecutive month.
Though JLR fared better in the UK and EU markets, change over in the EU Worldwide Harmonized Light Vehicle Test (WVLT) norms has would make its path ahead a bit more challenging. Rising competition and pricing pressures in the SUV market has added additional pressure in the EU markets. The cumulative effect of pressure on diesel cars, Brexit, trade war, rising input prices has had a toll on the company.
When it comes to the domestic sales, the turnaround strategy has borne fruits by way of increased market share in both Commercial Vehicle (CV) and Personal Vehicle (PV) segment. But the latest Q3 2019 performance has dipped amidst rising interest rate and subdued consumer sentiment.
10. Bajaj Finance
Last but not least, Bajaj Finance in the middle of all the uproar surrounding the liquidity crisis, has emerged to be much more stable than many of its competitors.
Bajaj Finance has a very well diversified loan portfolio with exposure across personal mortgage, financing of durables, vendor financing, rural loans, two- wheeler and three – wheeler financing.
The NBFC has been using technologies like cloud computing and data analytics in many streams of its operations which has helped it in cost savings at various fronts.
The company has strong capitalization with CRAR of 24% much above the RBI mandate of 15%. The recent Q2 2019 results have also shown healthy figures. The company has reported an increase in the size of Assets Under Management (AUM) by 38%.
A well-diversified portfolio, healthy earnings, cost optimization could be some of the factors which could have led to its healthy market performance.
The note on this NBFC would be incomplete without the mention of the Rs. 1 Crore penalty imposed on it by the banking regulator for its failure to comply with its fair practices code. But this news seems to have little impact on the trajectory that the company has taken.
The above list attempts to pick out the good, the bad and the ugly, which came to the forefront of discussion.
But with the upcoming elections, the ongoing trade war, the falling oil prices and many more of the moving parts at play, stocks at the forefront are sure to change.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.