A Crisis Can Be A Profitable Opportunity!

Investors adopt different strategies to beat the markets. Some rely on the advantage provided by technical analysis, some bet on value stocks while some are in favour of momentum stocks. Betting on stocks or companies that are facing a crisis situation is one such strategy that can reward investors handsomely. Shreya Chaware discusses the several aspects that investors should keep in mind while attempting to identify investing opportunities in companies that are going through a crisis situation

- Shreya Chaware

The recent two to three years for Indian corporates have not been good when it comes to corporate governance. In fact, several cases of mismanagement in terms of corporate governance have emerged in the past few years, leading to destruction of wealth for investors, including companies like Yes Bank, DHFL, Infrastructure Leasing and Financial Services, CG Power, etc. Then have been a few cases of crisis in certain leading companies such as Tata Motors, UPL, Nestle and even Infosys. All of these companies suffered a temporary setback but eventually emerged victorious after underperforming for a certain timeframe. Tata Motors went through a long period of underperformance owing to the woes faced by the whole automotive industry and also due to the internal conflict with one of the biggest investors in Tata Sons i.e. Cyrus Mistry.

UPL, the largest agrochemical company in India, faced a corporate governance issue with allegations by a whistleblower. Eventually, the resigning of the auditor pushed the stocks down by nearly 25 per cent between September 23, 2020 and November 4, 2020. During the same time the Sensex rallied by more than 7 per cent and the market breadth was in favour of the gainers during this time. Such a crisis situation presented an opportunity for investors to enter one of the most fundamentally improving stocks in the agrochemical sector. The company management denied all the allegations and also acted aggressively on the debt restructuring plan which showed the management’s clear intention of focusing on improving the fundamentals of the business.