Asset heavy firms with high debt scare away investors
Sensex closes in red after volatile session; ONGC, Jindal steel major losers

Money Aug 28, 2012

'Investors staying away from heavy asset, debt-burdened cos'

Asset heavy companies with high leverage may continue to generate less interest among investors in the equity market till interest costs come down, a top company official of ICICI Securities said.

"Asset heavy companies with high leverage (where debt level is high) are not witnessing much interest from investors and rightly so due to higher interest rate regime, which impacts the bottom line of those companies," ICICI Securities managing director and chief executive Anup Bagchi told PTI, on the sidelines of an equity valuation workshop guided by Professor Stephen H Penman of Columbia University.

This trend is likely to continue till the interest costs go down, which is linked to inflation, Bagchi said.

FIIs have infused a net amount of Rs 59,014 crore so far this year into equities and Rs 25,303 crore in debt market. Reuters

About investment strategy by the investors in the current market, he said investors prefer light balance sheet with low debt in this market.

"Light balance sheet with low debt level are preferred companies at this point of time," he said.

Sensex is presently hovering around 17,650 level with renewed interest from FIIs, which had pumped in around Rs 6,800 crore into domestic equities in August 1-24 period.

From the beginning of this year, FIIs have infused a net amount of Rs 59,014 crore so far this year into equities and Rs 25,303 crore in debt market.

"Yes, FIIs are investing mostly through the ETF (exchange traded fund) route and expectation of reforms," Bagchi said, adding that the index is not a homogeneous set of stocks.

"The asset light, cash generating companies are trading in high multiples. Banks stocks itself have a large dispersion while high leverage, asset heavy companies are trading at lower PE. So, valuing the company just using one metric like price to book or multiple is simplistic and one has to get deeper to reach at the proper valuation of an entity," Bagchi said.

PTI

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