Is there any option to bet on NCLT stocks for long term?

Debt

The tussle between bulls and bears is still on and i don’t think anyone would be able to win easily prior to elections. It has been almost half of the year that market is still quoting in a limited range of 10,000 to 11,000. Recently, when Nifty had shown some breakout at 11,000 on the back of strong FIIs buying, it was a feeling of me and most of the investors and brokers that we would now see a fresh new uptrend in market. But something like this didn’t happened at all. Even, Nifty has again came close to 10750 levels. It is surely a indication of weak buying interest among different participants of stock market.

If you read my this post Next 6 months are going to be very volatile! …………. You will find that such subdued movement like present one in stock market was a expectation, even before November month of 2018. Behind such expectation, there were few reasons which promoted this expectation.

Firstly, before elections, no one wants to take risk of heavy fluctuation in share market post election polls and real outcome. Elections generally have a 2-5 days affect on the stock market after which the situation again changes to normal. However, this time period is good enough to cause strong fluctuations either negative or positive side in stock market.

Secondly, in our economy, I don’t think the liquidity position is enough good to support overall normal functioning of market! After Demonetisation, we had witnessed a strong inflows in market. But if you see and try to experience what is really going on now, I think liquidity position in market is getting tight and more contracting due to number of reasons.

I don’t have the exact numbers and official data about this, but what I have seen is that ……… total amount of Disposable Income ( income remaining after deduction of taxes and social security charges, available to be spent or saved as one wishes ) has witness a steep fall in our economy in last few quarters.

Due to Increased competition among various fields and huge number of unemployed population, the earning capacity of Micro and small enterprises has also faced a good fall. According to my gathered information through some of my friends ( having their own small or micro level businesses ) working in the Capital Region Delhi, it has really become very hard for many entrepreneurs and business owners to continue earning money.

Due to some of the restrictions on cash transactions and lack Digital Infrastructure, the time period of converting stock and other inventory into Cash has become more time consuming! Additionally, due to weak availability of healthy profit margin and little weak demand, the employment opportunity and sector has also got a harmful impact. And this condition is not prevailing only in Delhi or around its areas, the condition is almost same in the East and South States also.

Likewise, in Corporate Industry also, the Industry is facing little liquidity problem due to Restrictions on Banking sector. After NPA issue reached to a new height and overall bad structure of the total advances by PSB appeared to be very serious situation, many PSU banks have been trying to improve their Overall Advances structure. This has made very difficult for the Debt Laden Companies to continue borrowing money from the market and Banks.  Because, banks doesn’t want now to have higher risk on their advances advanced to low credit profile companies. Plus, Government is also against such advances to low credit rating companies, which is clearly visible through Government policies.

Thus, other than election, there are few more important factors affecting the overall direct and indirect inflows in stock market.

Ye Bhi kisine Socha tha Kabhi, 100 rupee wala share 5 rupee bhi hojayega, or vo bhi 1 Sal Me.

I don’t think majority of the retail investors would have enough money now to buy Midcaps and smallcaps shares in bulk and big amount. Firstly, liquidity position is not favorable at present time. Secondly, due to continues decline in many low Market cap stocks, the retail investors have loosed a lot of money in 2018 and 2019. Therefore, in present market, this is very important to know where the money(still coming for SIP and few for direct mutual fund plans) is going.

If you pick up any data about transaction activity of mutual funds, you will find that they are still buying and selling shares in market. But to remain in a position of more protective, most of the amount invested in SmallCap and Midcap stocks have either been transferred to those shares having leadership position in their respective sector, or in rich cash generating corporates(like IT Sector), or in Nifty and Sensex Constituents, or the money has been significantly withdrawn.

No mutual fund or Financial Institution has tried to take risk in those companies which are either falls in the little risk to go into NCLT (means into Bankruptcy) or have been already referred to NCLT for Insolvency proceedings. And interesting thing in such shares is that risk of pledged promotor shares general remains very high, which in case comes into Open Market, commonly causes a drastic fall in related share or stock.

Badi se Badi Company ka bhaow bhi pani ho gaya hai ab to, kispe vishwas kare ab!

Earlier, there were hardly 4-5 cases of Pledged Shares in a year causing huge fall in a share price of related Entity or Company. But if you see at the numbers of such cases in FY19 or 1st April 2018 to February 2019, I think the number will easily cross even 50 shares. I am not saying this in accordance to any Research report or any other data, it is what I have seen in market in last few years.

However, I feel and believe that once the elections uncertainty will be cleared, the condition and position of our stock market should see some significant improvement whether the coliation Government or full majority Government comes into power. And therefore, I think selective NCLT stocks which have witnessed a heavy sell off in recent time and are trading now with almost Nil Price, could be a good option to take any big risk. I know such stocks have only bring bad times for the retail investors. But believe me, such prices of NCLT companies is not a true reflection of what share price they should actually deserve.

The system and procedure of NCLT proceedings have been prepared in such a way that it leaves only 1 percent chance of getting and passing through liquidation process. So, most of the times, listed shares of companies which have been referred to NCLT and even undergoes through Bankruptcy proceedings rarely gets affected on the Exchanges.

Such prices appearing of many NCLT companies are visible only because they have become the victim of that situation when pledged shares comes into Open Market for sale, Financial Institution dumps their holding in bulk amount and high profile investors takes a clear exit. Thus, no one comes to rescue such shares until the new buyer is being identified or uncertainty/risk of NCLT proceedings completely finishes.

Conclusion

Overall, I think it is just a matter of time and condition of market which has made possible to see such unexpectable prices in shares of many NCLT companies. It is true that before elections also, it is possible to some improvement in such NCLT companies and their shares, if Liquidity situation get little improved in our economy. But although, if someone uses current time intelligently to pick those shares which have fair value very higher than what the actual value and share price is in present, one can surely gain a great benefit and attractive returns in comparatively a shorter period of time.



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