From Lanco Infra to Amtek Auto: Junk debt-heavy stocks, analysts tell investors

Lanco Infratech on Tuesday hit a record low of Rs 1.70, down 10 per cent, extending Monday’s 20 per cent decline on the BSE, after the company said the Reserve Bank of India (RBI) had directed its lead lender, IDBI Bank, to initiate the corporate insolvency resolution process for the company under the Insolvency and Bankruptcy Code . Stock prices of seven of the nine listed entities (on the Reserve Bank of India’s most-indebted companies’ list) have seen price erosion of up to 40 per cent in the past one week. Besides Lanco, Amtek Auto, Bhushan Steel, Electrosteel Steel and Jaypee Infratech were down 8-40 per cent on the BSE in the past week. Of these seven, five are trading below or close to their respective face value. Commodity Trading Tips

 


In case investors are wondering if these stocks are worth buying now that they are on a major discount sale, experts advise against it. Given the debt mess that these companies are in, analysts see a bleak future for them and suggest retail investors steer clear of these scrips. For those who are already invested, it is a good time to book losses and exit, they advise. “Even after repaying the debt, there will not be much left for the shareholders. Even if outsiders take charge, one needs to evaluate if the asset base exceeds the outstanding amount by a big margin. In some cases, I feel the value of assets will not be big enough,” said G Chokkalingam, founder and managing director of Equinomics Research & Advisory. His advice to investors is to stay away from such stocks for now. “Since the companies are loss-making and unable to service debt, the problem has no easy solution. Shareholders, I feel, will not benefit much out of this restructuring.” Nifty Trading Tips