2024 Wealth-Destruction Stocks: Down 50% or More - What’s in Store for 2025?

Despite 70% of stocks in the BSE Sensex, BSE Midcap, and BSE Smallcap indices posting positive returns so far this year, a significant portion of stocks—around 325—are struggling to stay afloat.

Fusion Micro Finance has seen the steepest decline in the BSE Smallcap index in 2024, with its share price plummeting nearly 68%. On December 13, 2024, its stock dropped to Rs 186.75, down from Rs 576 on December 29, 2023. Similarly, Spandana Sphoorty Financial and Filatex Fashions both saw their shares fall by almost 67% in the same period.

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Other smallcap stocks, such as HMA Agro Industries, GVK Power & Infrastructure, Kamdhenu Ventures, and India Pesticides, also posted significant losses of 51%, 50%, 48%, and 47%, respectively, year-to-date. Despite these losses, the BSE Smallcap index itself has gained 33.5% YTD.

Given the current market environment, what should investors do? Global financial services firm HSBC recommends favoring large-cap stocks over small- and mid-caps due to their relatively attractive valuations and stronger earnings outlook.

The BSE Midcap index, which has risen 30% YTD, has also seen notable declines. Zee Entertainment Enterprises has lost nearly 52%, while Aarti Industries, Bandhan Bank, Relaxo Footwears, IDBI First Bank, and AU Small Finance Bank have all experienced losses of over 25% so far this year.

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2024 has been a volatile year for Indian equities, particularly from October onwards. After reaching their peaks in September, the NSE Nifty and BSE Sensex corrected sharply in October and November. This turbulence was driven by global economic concerns, geopolitical tensions, high valuations, and the impact of elections in the US and India. Foreign Portfolio Investors (FPIs) were net buyers of Indian equities until September, purchasing Rs 93,000 crore worth of shares. However, they sold more than Rs 1.10 lakh crore worth of shares in October and November.

Within the BSE Sensex, eight companies have seen significant declines in investor wealth year-to-date as of November 13. IndusInd Bank has fallen 38%, while other major companies like Asian Paints, Nestle India, and Hindustan Unilever have lost 29%, 15%, and 10%, respectively. Kotak Mahindra Bank and Titan Company have each slipped by 5%. Despite these setbacks, the BSE Sensex has advanced about 14% so far in 2024.

According to JM Morgan Asset Management, India is expected to maintain strong earnings momentum, driven by falling interest rates and robust growth in services exports. However, foreign inflows have slowed recently due to high equity valuations, which have been supported by strong domestic investor participation. This could potentially trigger a market correction, but analysts believe there is a "floor" to this correction, as the long-term investment case for India remains compelling. Additionally, India is emerging as a key destination for "friendshoring" in emerging markets, which could boost foreign direct investment and spur growth in the manufacturing sector.

HSBC adds that they see promising domestic-driven opportunities in India and ASEAN, supported by favorable demographic trends, the rise of the middle class, and the ongoing technology boom.

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