Nifty records worst fall since October 2018; over 22 stocks fall 20-50% in June

Source: moneycontrol.com

The Nifty50, which had hit a record high of 12,103 on June 3, failed to keep the momentum going and closed with losses of 1.12 percent in June. The index recorded its worst fall since October 2018 when it fell by nearly 5 percent.

The index moved in a range and retested its crucial 50-days exponential moving average (EMA) for seven consecutive days in a row before bouncing back towards 11,900 levels. However, selling pressure at higher levels pushed the index below 11,800.

The index finally closed 52.70 points lower at 11,788. The index closed below its 5-day EMA, 20-EMA, as well as 13-EMA which does not augur well for the bulls.

The S&P BSE Sensex might have lost a little over 300 points or 0.8 percent in June, but the real carnage was seen in the broader market space. The S&P BSE Midcap and the S&P BSE Smallcap index fell 4.2 percent and about 2 percent respectively for the month of June.

More than 70 percent of the stocks or 356 in the S&P BSE 500 index gave negative returns in the same period. As many as 21 stocks in the 356 stocks fell 20-50 percent which include names like Jet Airways, Jain Irrigations, Reliance Infra, Reliance Capital, PC Jeweller, Reliance Power, and Reliance Communications, etc. among others.

Note: Here is a list of 22 stocks which fell 20-50 percent in June. The table is for reference and not for buy or sell ideas:

Most of the stocks mentioned in the list are value traps, and investors should not try to catch the falling knife, suggest experts.

“The mentioned stocks are certainly not value buys, but definitely Value Traps. Investors misunderstand the meaning of value to something which is available cheap,” Lovelesh Sharma, Head of Research – Epic Research, told Moneycontrol.

“This is not right since it is manifested through biases that an investor develops while looking at prices, when the price falls to an extent of say more than 50 percent. In an established bullish trend, a Value stock or Value buy would certainly be in tandem or likely to outperform its peers or the index,” he said.

Sharma further added that, even if there is any price drop or say correction in value buy, it should be an outcome of a slowdown in that sector. But, here the stocks that we are seeing are debt-ridden, have compliance and governance issues, and some of them are now going through NCLT.

Most of the stocks which fell double digits in the S&P BSE 500 index also hit their respective 52-week low. As many as 88 stocks in the S&P BSE 500 index hit their fresh 52-week low which includes names like YES Bank, Reliance Infra, SPARC, Indiabulls Housing Finance, IDFC, BOSCH, Biocon, Andhra Bank, Indiabulls Ventures, Wockhardt, etc. among others.

As many as 13 stocks fell 50-70 percent in June which include names like Eros International, Cox & Kings, Sintex Industries, High Ground Enterprise, Jet Airways, Omkar Speciality, and McLeod Russel India Ltd.

“The smallcap space has been in pressure for a while and, in recent months, it has been oscillating in a range. If we observe closely, the stocks which have fallen more than 20 percent are mostly those which are affected with huge debt or corporate governance issues,” said Sharma.

The market breadth has been a concern for the market especially at a time when benchmark indices hit fresh record highs. Nearly 300 stocks in the BSE500 stocks are trading below their long-term moving average (200-DMA) in June.

They include marquee names like ITC, Maruti Suzuki, Asian Paints, Hindustan Zinc, IndusInd Bank, Avenue Supermarts, Tech Mahindra and Dabur India, among others.

Experts feel that there is a possibility that we might have hit an intermediate top in June, and a breakout above the recent top of 12,103 on the Nifty and 40,312 on the Sensex recorded in June is still some time away.

“The current anatomy of the market structure is fractured; a high number of stocks are trading below 200 EMAs. Budgets are indeed important to set the right policy initiatives for the economy,” Umesh Mehta, Head of Research – SAMCO Securities, told Moneycontrol.

“However, the mood of the street is not positive and therefore policy initiatives, if any, will not be immediately reflected in the stock prices. Therefore, we believe the market might have achieved an immediate top and a breakout above the recent is not likely to happen in near term,” he said.