The Nifty 500 has gained 18.1% in the past six months, but the wave did not lift all boats. Some companies’ share prices fell due to their specific challenges, like regulatory probes, rule changes, major business losses, misconduct, or broad sectoral downturns. In this edition of Chart of the Week, we look at a screener of stocks that have been the biggest wealth destroyers in the past six months and one year, and analyze the reasons for the same. 

This screener consists of 40 companies from the Nifty 500 index with negative price changes in both the past six months and year. The chemicals & petrochemicals sector features prominently with 11 stocks, followed by the banking & finance, retailing, and textiles, apparels & accessories sectors with five stocks each. The chart represents the top 10 wealth-destroying stocks over the past six months. 

Chemicals sector faces margin pressure amid Chinese competition 

Starting with the chemicals & petrochemicals sector, we find two wealth-destroying stocks in the top 10 list: Navin Fluorine and UPL. The dip can be attributed to the economic slowdown in the West and easing COVID restrictions in China, which increased competition and put pressure on margins over the past year. According to HDFC Securities, the sector’s overall revenue could fall by 5.7% YoY in Q3FY24 due to destocking and weak demand. 

Navin Fluorine declined by 32.4% and 26% in the past six months and year, respectively. In October 2023, the firm saw an 18% decline following the resignation of its CEO, Radhesh R. Welling. This dampened investor sentiment due to Welling's record of doubling the company's net profit and revenue from FY19 to FY23. 

UPL also fell by 20.3% and 32.7% during these periods respectively, driven by its Q3FY24 earnings reporting a net loss of Rs 1,217 crore against a profit of Rs 1,087 crore in Q3FY23. It also faced weak demand and inventory pile-up.

Global demand and supply chain disruptions affect textile stocks

Moving on to the textile, apparels, and accessories sector, we have two stocks in the top wealth destroyers: Rajesh Exports, and Lux Industries. The sector has been hit by declining consumer demand in Europe and the US due to economic slowdown and rising inflation. Geopolitical tensions and trade disputes have added to an uncertain atmosphere, and hurt investor confidence.

Rajesh Exports saw its stock plummet by 31.2% and 61.5% in the past six months and year, respectively. This fall was due to issues like incomplete disclosures and a sharp drop in profit and revenue, with analysts suggesting possible misconduct in its financial reporting.

Lux Industries fell by 24.9% in six months and 18.7% over a year. Contributing factors include IT raids at the firm’s Kolkata premises over allegations of tax evasion amounting to Rs 200 crore. Additionally, rising cotton prices have squeezed the company’s margins.

Brightcom and Paytm decline on regulatory lapses

In the software & services sector, the once startup-star One97 Communications (Paytm), and Brightcom Group rank among the top wealth destroyers. Macro-level factors like rising borrowing rates have added pressure in the past year. 

Paytm’s stock prices dropped by 38.5% and 12.3% in the past six months and year, respectively. Following regulatory scrutiny and an RBI order to shut down its Paytm Payments Bank services, the stock plunged by 40.5% in just five days (Feb 1 to Feb 6). 

Brightcom Group fell by 23.4% and 32.1% in the past six months and year, respectively. It fell due to regulatory concerns over lapses in preferential share issues, resulting in SEBI banning some top executives from directorial posts. This follows previous investigations for overstating profits and fines imposed by SEBI. Additionally, an enforcement directorate probe uncovered significant cash and assets during searches at a key personnel's premises. 

Commercial services, retailing and media decline due to slowdown and rising competition

The commercial services sector also had two stocks among the top wealth destroyers: Delta Corp and Polyplex Corp. Delta Corp’s stock tanked by 27.1% and 28.7% over the past six months and year, respectively. The fall was mainly due to the Centre imposing a 28% GST on gambling and online gaming, which led to a GST demand of Rs 23,200 crore on the firm. 

Polyplex Corp fell by 21.9% and 33.4% over the same periods. This came after the company’s promoters pledged 100% of their shares and agreed to sell a 24.2% stake to Dubai-based AGP Holdings (AGPH) for Rs 1,380 crore. 

The retailing sector had only one stock among the top wealth destroyers: Vedant Fashions. The sector has been falling due to high inflation and economic slowdown. Vedant Fashions’s stock dropped by 22.7% and 18.1% over the past six months and one year, respectively. 

Finally, the media sector was represented by, no surprise, Zee Entertainment Enterprises in the list of top wealth destroyers. The firm’s stock fell by 22.1% and 18.4% during these periods, driven by the termination of its $10 billion merger with Sony Entertainment, which incurred a $90 million termination fee. The termination was due to declining profitability, management uncertainties amid SEBI probes, reputation of mismanagement, Russian subsidiary issues, and competition from the upcoming Disney-Reliance merger