Top 5 Multi-baggers that turned into Multi-beggars
Created on 04 Aug 2021
Wraps up in 5 Min
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“Play it long in the markets & you won’t ever regret” - every average Joe seems to preach. But, however long you play, if a stock isn’t backed by a strong story, things will turn upside down, and before you know it, you’d be left with a pittance!
Have you wondered why? Is investing in the stock market a gamble? What could be the reason for market crashes, and how do stocks of some companies even with solid fundamentals fall? Does investing in falling stocks help? What do you think?
Well, today, we’ll be talking about some stock stories of companies that once gave very high stock returns, but then crashed on their doomsday!
Let’s talk about a time when 2G was the real OG.
Before 4G came into existence, people all around the country were looking for the best data plans alongside talktime. By providing some extraordinary plans, Reliance Communications started to dominate the Indian markets. While its rivals charged around Rs 4-6 even for incoming calls, RCom offered it for free along with a headset.
But these should have increased the price of RCom shares, right? Well, things didn’t happen the way the markets anticipated.
It all started in 2011 with the 2G scam in which Mr. Anil Ambani was investigated by the CBI. It caused the shares to fall drastically, and the investors started to lose faith in the company. Another downfall came in January 2013 when the failure of tower monetization worth Rs 35,600 crores led to a debt pile in the company.
In October 2016, RCom merged with Aircel, and it again came into the limelight in 2017 when Ericsson filed a petition to recover 1,100 crores. Anil Ambani was held for not paying Ericsson. It led to the parting of ways between Aircel and RCom which further brought down its share price.
In Feb 2020, Chinese Banks sued Anil Ambani to recover a $680 million loan. In another instance, he was directed by the UK Court to pay 100 million dollars. That’s how things turned upside down, pulling the company closer to its doomsday!
Yes, you read it right. Yes Bank received a lot of attention s few years ago by giving a return of 2800% from 2005 to 2018, but again something really interesting happened and turned the tables!
In August 2018, its shares were trading at an all-time high of 382 INR. But within a year, the stock crashed by a whopping 80%. You’d be surprised to know that 12.8 INR is the rate seen in the last trading session on NSE. That’s around a 100% decline from the 2018 levels!
So what exactly happened inside the company that changed its fate?
It all began when in April 2018, the RBI stated to the bank that it had found severe lapses in the functioning and governance of the bank. Soon, RBI took action on this, and subsequently, many brokerage firms cleared their holdings, resulting in a free fall in the price of its shares. To sum up, the wrong actions of the management led to a downfall of the company's fundamentals.
It has been observed that the airlines’ stocks in India have a very high risk to reward ratio. This will be the case forever as the operational cost is really high, and there is cutthroat competition to grab the customers in that industry. Not only this, the maintenance cost of airplanes is very high, and a minor fault in a plane can cause a loss of crores of rupees.
Jet Airways is one such company that has managed to fail, facing drastic downfalls due to all these factors. The share price of Jet Airways dropped from an all-time Rs 1340.70 to Rs 86.45.
What was once ranked India's second-largest airline had to temporarily suspend its operation in 2019, as they failed to secure the emergency funds, resulting in a major financial crisis. Things got even worse when the airline was forced to stop the airplanes because of the inability to pay the aircraft leasing companies.
All that glitters is not gold. This quote just turned true in the case of PC Jewelers.
In 2018, its shares were trading at an all-time high of Rs 587. With its multi-bagger rally, retail investors had a gut feeling that this share had a long way to go, but promoters of the company had some other plan.
A media report stated that the firm was probed by SEBI for non-disclosure of association with a company alleged for stock manipulation, and hence the stock took a U-turn. Within a year and a half, the stock was trading at Rs 24.50, which means 1 lakh rupees invested in PC Jewelers would have been reduced to around 4500 in just 1.5 years! So, now you know.
People often think that if the company is not related to any scam, it will generally do well in the markets. But this is not always the case. Sometimes the investors start raising questions over the financials of the company. This was exactly the case with a manufacturing specialty pharmaceutical company Bilcare Ltd.
Bilcare’s shares, which hit a record high of Rs 1830 in January 2008, are currently trading at a mere Rs 100 on the NSE! A spokesperson of the company blamed the bearish market for the sharp fall in the share price. A fund manager said that the investors started panicking after they didn’t get an appropriate response from the company when they saw the faltering fundamentals of the company.
The bottom line - how to play safe?
So, how to decide which stocks should you NOT be investing in? Which factors should you consider while filtering them? Is looking at ratios & fundamentals enough?
Well, this blog must have changed your perspective. Even brilliant companies with super-strong fundamentals can go bust. Even shares of companies with sound business models crash.
But if you were to try & find a common attribute in all these companies, you’ll see that each company’s management was, more or less, in some kind of a fix before things turned bad for its shareholders. Each company had something wrong with its top management. Isn’t it?
So, the next time you are looking to invest in a stock, do not forget to analyze the top management. But then, the question is… how to do that?
Well, you don’t have to worry when we are here for you. Here’s a blog to tell you everything you need to know about analyzing the management of any company before investing.
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