By Ruma Dubey

The market is extremely weak today with no immediate positive trigger on the horizon. With mixed predictions coming in for monsoon – IMD says rainfall will be at 88% and Skymet says it would be 102%. So uncertainty has only grown deeper.

And in the midst of all this, we have highly leveraged companies, most infra and capital goods companies and even realty companies sitting tightly in deep red on the bourses. The market is disappointed with the hawkish stance of the RBI Governor and these stocks have more than a disappointment – the markets have downright beaten them down to pulp.

A highly leveraged group, the biggest loser in the group is Jaypee Infratech which hit a new low today at Rs.12.65 and remains around the same levels currently. The entire Jaypee group consolidated debt stands presently at Rs.65,000 crore and news is that some of its subsidiaries have not been able to service the interest payment dues. Jaypee Infra and Jaypee Power have fallen into account-1 category for banks, which means they have not been able to service debt for sixty days now, say sources. The banks therefore are working on a corrective action plan to prevent these accounts from becoming an NPA. Jaypee Infra debt is around Rs.13,000 crore. Now with the possibility of no interest rate cut this year, the company will have to continue paying a higher rate, already when it is unable to do so. Sale of non-core assets is the only way out and we could see many of these being put on the block in the coming days. But laying the blame for the plight of this highly leveraged on Rajan and his “cautious” stand is being so irrational.

And the market is punishing all these highly leveraged companies today. Look at the all the top losers on the bourses right now – Unitech, JP Associates, Adani Power, HCC and Reliance Power. HCC's net debt as of March 31, 2015 stood at Rs 5000 crore, an increase of Rs 200 crore from the beginning of the financial year. Unitech’s consolidated net debt as of March 31 stood at Rs 6,332 crore. Adani Power’s debt at end of FY15 stood at Rs.41,400 crore. And Reliance Power debt as at 31st March 2015 stood at Rs.31,000 crore.

There are others too on the list of “rate sensitive” and highly leveraged stocks, all on the “losers” list – Punj Lloyd, Alok Textiles, HDIL, JP Power, GMR Infra and the list goes on.

Credit Suisse has put out a report stating that the aggregate debt of the top ten groups of India accounts for about 13% of total bank loans and a staggering 98% of the entire banking system net worth. Other high debt companies are – Jet Airways (Rs 10,895 crore), HCC (Rs 11,000 crore), DLF (Rs.20,337 crore), Unitech (Rs.6800 crore), Bhushan Steel (Rs.35,000 crore), Essar Oil (Rs.24,000 crore), GVK Power (Rs.22,000 crore), Alok Industries (Rs.20,000 crore), Suzlon (Rs.17,000 crore), Shree renuka Sugar (Rs.9500 crore). In the telecom, Bharti Airtel leads at around Rs.67,000 crore, Rcom debt is at about Rs.41,000 crore and Idea has a debt of around Rs.11,000 crore.

The market is now wary of these stocks as their costs will continue will eat away the margins and future growth. Highly leveraged companies are currently concentrating on reducing debt through sale of non core assets and there is no way they are going to get into any new project. This means growth for such leveraged is now stagnating and their improvement in margins can happen, at least for now, only by reducing debt.

The RBI Governor has pretty much decided to sit on his hands for the rest of 2015 and this means, companies will live with these rates for the rest of the year. And that is what has spooked the markets. For realty firms, it’s a double whammy as they have to face the troubles of high debt in their books while demand for their projects will remain subdued as EMI costs have not yet come down to lucrative levels. And they will not in this year.

How can we blame the RBI or the Govt for inaction? These companies have, during the good times, allowed their ambitions to run unbridled, running ahead of reality and logical thinking. Getting into unrelated ventures, expanding beyond their means, these companies are today more caught up in servicing their illogical debts putting all growth on hold. So how is anyone else responsible for lack of growth? It is an easy way out to always lay the blame on others. Blaming the RBI Governor for being “too cautious” is indeed very immature – if Rajan behaves like these companies, can you imagine where India would be? For now, these companies have to concentrate on cleaning up their balance sheets, getting aggressive on selling sub-standard investments of the pre-2008-09 heady days. And Rajan knows best; we have to have that faith instead of getting argumentative.

KV Kamath, BRICS bank chief right said a few days ago, “India Inc's problems, both of perception and reality, might be internal. I hardly hear complaints regarding project clearance being held up by the New Delhi bureaucracy and that the 'policy paralysis' that characterised the last years of the Manmohan Singh regime, is a thing of the past.”

What is scary now is that hopefully these companies will not start defaulting or else, can you imagine the banking crisis which could balloon up?