In the last one year we have seen some very high profile stocks crash sharply in a span of just a few days. If we were to just list the high profile stocks that fell vertically in the last few months, then stocks like Vakrangee, PC Jewellers, Manpasand Beverages, Yes Bank, Bandhan Bank, Dewan Housing and Infibeam come to mind. There is a popular saying that there is no smoke without fire and in each of these cases, there was a real fire which people failed to see. Above all, in each of these cases was the classic of lack of transparency.
They fell like nine pins
Most of these stocks mentioned above were at some point the darlings of retail investors and traders. But look at the magnitude of the fall in these stocks. Vakrangee and PC Jewelers lost 90% of their peak value over a period of time. Manpasand was not that lucky as it lost nearly 60% of its value in a span of just 2 days. Dewan Housing, which was for long considered to be an emerging star in the housing finance space, lost nearly 60% in a single day and has failed to recover since then. Yes Bank, a blue chip member of the Nifty index has lost nearly 40% in a month after the RBI refused to extend the tenure of the chairman. But the worst fall was that of an F&O stock, Infibeam which lost a whopping 73% in a single day of trading. Why are these stocks crumbling despite assurances of “All is well” from the management of these companies?
Because, “All is not well”
Interestingly, in each of these cases there was enough fire for the smoke. If you were to draw a common line between these companies, it was all about lack of transparency. Let us look at individual cases. In case of PCJ and Vakrangee, it was all about investments that were not consistent with the larger interests of the groups. In case of Manpasand it was attributed to some dubious accounting practices. Bandhan Bank, as it turned out later had been totally opaque about its promoter stake till the time the RBI pulled it up. Yes Bank always had concerns about asset quality and the recent RBI stricture only went on to reinforce that. In case of DHFL and Indiabulls, it was a case of vulnerabilities in their books that were not adequately disclosed. Infibeam was a case of interest-free inter-group lending, a classic case of conflict of interest. In all these cases, it was about lack of transparency.
What should investors do?
Be cautious of mid-cap stocks that show extraordinarily high growth. More so, if the market also appears to be keen to assign ridiculous valuations to new-fangled stories. If you bought Bandhan Bank at a substantially higher P/BV than HDFC Bank, then you only have yourself to blame. This is not the time to bet on dubious stories that soar. Focus on solid stories that can sustain! ©
