These stocks soared high during Covid but plunged as pandemic ebbed

As was the case with indices that saw great momentum during this period, there was a whole lot of stocks that followed the path of the benchmarks. These stocks saw unprecedented appreciation when the markets were rallying and the reverse also became true when they were among the biggest losers when the markets started falling after October 2021.

“The change in market stance from growth and momentum to value is clearly visible and the stocks which had gone expensive are seeing mean reversion,” said Divam Sharma, Co-founder, Green Portfolio. He believes that the reallocation is happening towards fundamentally strong management, and sectors which have shown a good correction.

Here’s a list of 20 stocks that were among the top gainers of the pandemic era and but are now trading at a discount from their highs achieved during the past two years.

So, what went wrong with these stocks that resulted in a sharp decline of their market price. Experts are of the opinion that these stocks are either high-growth stocks running at very high valuations like Brighthcom Group, KPIT Technologies and Vaibhav Global or had some news impacting their valuations and perception like Adani Total Gas Ltd, Adani Green Energy and IRCTC. Apart from this, there are certain sectors that gained during the pandemic have lost preference as the things came back to normal. This included certain tech enabled companies, e-commerce / online shopping portals and QSR (quick service restaurants).

“Any market corrections in highly valued stocks are met with extreme reactions, leading to big whipsaws, as seen in many such stocks and for these high growths and overvalued stocks to reach their previous glory, we need the market to get back to the euphoria of last year, where people could ignore valuation for growth or for the companies to deliver the projections of value with actual numbers,” said Sonam Srivastava, Founder, Wright Research.

The stock that broke all barriers and flew into the orbit was Tata Teleservices (Maharashtra) Limited which appreciated by a never heard 14,000 percent during the bull run witnessed during the pandemic. Once a forgotten story, the stock was lurking at a price close to zero but before the onset of the pandemic. The operators lunged onto it like hot cake and at one time hit its upper circuit in 13 trading sessions at a stretch to reach its high of Rs 291.05.

Experts terms this meteoric rise of the stock as ‘bizarre’ as the company has been incurring losses for past several years and its fundamentals are very weak. They see no reason for the stock to reach such heights. However, since the turn of the tide, the stock is among those that declined the most – about 96 percent – from its high of Rs 291.05. It has recovered marginally but is still down 55 percent.

Brightcom Group Limited is another stock that witnessed huge appreciation during the pandemic when it rose more than 7,800 percent from its lows of Rs 1.55 in March 2020 to Rs 122.88 on December 24, 2021.

There were several reasons for the meteoric rise in the price of Brightcom shares. It allotted preferential shares in September 2021 to foreign portfolio investors which pushed the price high. This was followed by issue of warrants convertible into equal number of shares to Shankar Sharma, vice-chairman and joint managing director at First Global.

Other very big positive was the fact that the firm paid off all bank loans and became a debt-free company in 2021.

However, according to Mohit Nigam, Head – PMS, Hem Securities, there are certain issues associated with the company which impact the performance of the stock. “There is very low promoter holding which is reducing gradually and there are various corporate governance issues with the company as Sebi has ordered forensic audit of Brightcom Group to assess if books were manipulated, financials were misrepresented, impairment of assets, etc,” he said.

Experts believe that the company has still a long way to go to command such high valuations and the stock is on the return journey now, trading 48 percent below its highs it made in December 2021.

Solara Active Pharma is currently trading Rs at 446 after having corrected more than 75 percent from its high of Rs 1,859.3 made on May 19, 2021. “Fundamentals are not good as stock is having negative RoE (return on equity) and RoCE (return on capital employed) and sales growth is also not visible,” said Nigam.

There are, however, stocks in the above list which have strong business model, good fundamentals and healthy financial position. Their decline can be attributed to the overall market sentiments and sectoral performance.

Going by the past two decades of experience, the CNX SmallCap Index tends to go through a meaningful pullback of 25-30 percent after an exponential rally of 18-20 months. “In the corrective phase, the stocks with weak fundamentals and/or speculative interest tends to correct very sharply (even to extent of 60/70 percent) and this phenomenon was seen in year 2018 (post 2016/2017 rally), year 2015 (post 2013/2014 rally) and year 2011 (post 2009/2010 rally),” said Gaurav Dua, Head – Capital Market Strategy, Sharekhan by BNP Paribas.

“This time it is no different and accordingly, investors need to reduce exposure to broader market and stocks with weak fundamentals as part of the portfolio strategy,” recommended Dua.

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