Over the past year and despite the volatility in recent months, the Indian equity market has delivered impressive returns, with the Nifty 500 index gaining 17.6% in 2024.
Foreign outflows increased recently due to high equity valuations and muted Q2 results in India. Foreign investors were lured elsewhere by US Fed rate cuts and recent China stimulus, contributing to an 8.1% decline in the Nifty 500 over the past quarter.
Finance Minister Nirmala Sitharaman said on December 17, “This is only a temporary blip, and healthy growth will return in the coming quarters.” She added that India’s GDP growth has averaged 8.3%, making it the world’s fastest-growing major economy.
While the Indian equity market still managed to post strong gains in the past year, the gains were unevenly distributed. Some companies surged ahead, while others struggled due to challenges such as regulatory investigations (Vodafone Idea, Rajesh Exports), sector-wide downturns (banking and finance), or significant business losses (Honasa Consumer, Tanla Platforms), leading to a loss of investor wealth.
In this edition of Chart of the Week, we spotlight the underperformers – companies that saw significant declines in their share prices, lagging behind the index and leaving investors disappointed.
126 companies from the Nifty 500 have made it to the ‘Wealth Destroyers’ screener in 2024. The banking and finance sector struggled the most, contributing 28 names to the list. Among them are CreditAccess Grameen, RBL Bank, Ujjivan Small Finance Bank, IndusInd Bank, and Equitas Small Finance Bank. The software and services sector followed, with 11 companies making it to the screener including Tanla Platforms, Tata Technologies, Happiest Minds, Tata Elxsi and Birlasoft.
A canceled merger and rising competition weigh on Zee Entertainment
Media company Zee Entertainment, witnessed the sharpest decline of 52.9% this year within the Nifty 500 universe, topping the wealth destroyer screener. It has been a tough year for the company, with the main setback being the cancellation of its proposed merger with Sony Group’s India unit, which cited concerns over fund diversion and weak corporate governance.
Additionally, the joint venture between Reliance Industries and Walt Disney, announced on February 28, merged Viacom18 and Star India, has created a media giant valued at Rs 70,352 crore. This has intensified competition, making it more difficult for Zee to grow its market share. The company also reported mixed results in Q2FY25, with revenue and operating profit falling nearly 19% and 3% YoY, respectively. However, net profit saw a 70% YoY increase driven by a 20.3% reduction in expenses through effective cost management. But the previous year's net profit was affected downward by a one-time charge of Rs 120 crore, which did not recur this year. The net profit this Q2 rose mainly due to reduced expenses and the absence of last year's one-time charge, and operating profit declined.
Multiple banking and finance companies feature in the Wealth Destroyers
CreditAccess Grameen, one of India’s largest non-banking finance company-microfinance institutions (NBFC-MFI), saw the sharpest decline of 49.2% in 2024 in share price within the banking and finance sector. This came after its Q2FY25 results highlighted increasing delinquencies in the microfinance space, slower disbursements, and higher provisions. Gross NPA rose by 1.7 percentage points YoY to 2.4%, while net NPA increased by 0.5 percentage points YoY to 0.8%, signaling a decline in asset quality.
In fact, the Nifty Bank index, with an 8% return in 2024, has notably underperformed the broader Nifty 500 index. Banks such as AU Small Finance Bank, Axis Bank, IndusInd Bank, and IDFC First Bank have significantly contributed to this underperformance, appearing on the wealth destroyer screener. IndusInd Bank has faced a sharp 40.1% decline over the past year. This was due to increased stress in microfinance loans, failure to meet its full-year loan growth target, and a surge in bad loans in the microfinance segment. Similarly, AU Small Finance Bank and IDFC First Bank have dropped nearly 30% in 2024, while Axis Bank has recorded a smaller decline of 0.9% during the same period.
In addition to these big names in the sector, small finance banks and institutions with high exposure to unsecured loans also struggled. RBL Bank faced asset quality concerns due to rising NPAs and regulatory challenges, which eroded investor confidence and sharply reduced its share value by 40.1% over the past year. The gross NPA ratio rose by 0.2 percentage points QoQ to 2.9%, while the net NPA increased by 0.1 percentage points QoQ to 0.8%.
Ujjivan Small Finance Bank saw a 41.5% drop in 2024, with net profit for Q2FY25 declining by 29% to Rs 233 crore. This decline was due to deteriorating asset quality and higher expenditures. The bank's gross NPA ratio increased to 2.5% in Q2FY25, up from 2.4% a year earlier, while the net NPA stood at 0.6%, compared to 0.1% previously.
Equitas Small Finance Bank saw a 38.6% decline in its stock price over the past year. Weak quarterly results in FY25 and higher provisions to address stress in its microfinance portfolio drove this drop.
Regulatory issues and weak financials trigger sell-off in Vodafone Idea and Rajesh Exports
Vodafone Idea's share price dropped over 45% in 2024 due to regulatory challenges and ongoing profitability concerns. The Supreme Court’s decision on Adjusted Gross Revenue (AGR) added financial pressure, requiring the company to pay significant dues. The company is also struggling with a shrinking customer base, lagging far behind Reliance Jio and Airtel, and rising costs, leading to doubts about its long-term financial health.
Similarly, Rajesh Exports, a gems and jewellery company, saw its stock decline by 36.3% over the past year, struggling with multiple challenges. The company faced regulatory compliance issues, including missing documents in earnings filings and tax-related controversies. The company also faced allegations of ambiguous transactions and lapses in disclosures, leading to accusations of misleading financial reporting.
In addition, Rajesh Exports has struggled with declining revenues and thin profit margins since Q2FY24, making it difficult for the company to generate sustainable profits.
