Paytm to Zomato: 2022's Worst Performing Stocks so far...

Foreign institutional investors (FIIs) have been heavily selling Indian stocks this year.

Expectations of an interest rate hike by the US Fed was plaguing the markets. Then the war between Russia and Ukraine accelerated the selloff.

Thanks to the recent rally due to easing geopolitical tensions and fall in crude oil prices, the BSE Sensex, which was down about 12% since the start of this year, has recovered.

Broader markets too, have recovered some losses after facing the heat.

It seems as if the market has factored in how the Russia-Ukraine war may end soon. Mind you, news flow related to this war is far from over and it may continue to cause some volatility.

So, which are the top stocks that have borne the brunt of the selloff since the start of 2022?

Here are the top five...

#1 One97 Communications (Paytm)

We all know which stock would top this list right?

Shares of One97 Communication, Paytm's parent company, are down in the dumps. Since the start of this year, they have plunged around 55%, from Rs 1,335 to Rs 600.

Since listing, Paytm has witnessed an erosion of more than Rs 1 lakh crore of market value due to a number of events like RBI barring the onboarding of new customers, brokerages downgrading the stock, and most important of all, its valuations.

Last month, the RBI directed Paytm Payments Bank to halt the onboarding of new customers after noticing certain material supervisory concerns. The central bank asked it to appoint an IT audit firm to conduct a comprehensive system audit.

Investors have turned skeptical towards high-growth but non-profitable companies like Paytm and sold their shares.

And why wouldn't they. The stock has destroyed enormous wealth over the past few weeks with no respite in sight.

All those investors who fell for Paytm thinking it has solid growth prospects forgot to check an important metric - the company's fundamentals.

Paytm has had a woeful past and a cursory look at its financials would tell you that.

Shares of the company may continue to tumble more as talks around interest rate hike heats up. Many investors believe that interest rate hikes would increase the cost of capital for Paytm thereby reducing its margins on its loan disbursals.

Right now, the fintech company is a must have on your mobile phone but not in your equities portfolio.

#2 Dhani Services

The second stock on our list is Dhani Services.

Stock of the financial services company is down 58% so far in 2022, thanks to selling by FIIs.

Dhani Services, earlier known as Indiabulls Ventures, had been on a downtrend this year amid stake sale by FIIs.

In February this year, Baillie Gifford Pacific Fund, a sub fund of Baillie Gifford Overseas Growth Funds, sold 9.43 m equity shares or 1.55% stake at a price of Rs 85.07 on the NSE.

In the same month, the company informed the stock exchanges that Jasmine Capital Investments and Tamarind Capital had collectively reduced their stake by 2% (12.14 m equity shares).

Apart from FIIs, negative developments revolving identity theft on the company's app, have dampened sentiment.

Dhani Services is engaged in various business activities including asset reconstruction, stock broking, etc. The company has also said it may venture into the business of providing bouquet of services, directly or through its various subsidiaries, depending upon the available business opportunities.

#3 Dilip Buildcon

Construction and infrastructure development firm Dilip Buildcon is the third stock on our list. After hitting highs of Rs 750 last year in October, the stock currently hovers around Rs 240.

Since the start of this year, Dilip Buildcon shares are down 45%.

One major reason behind this fall can be attributed to the company's financials. It's reporting losses for the last few quarters now.

In the third quarter of financial year 2021, Dilip Buildcon reported a net loss of Rs 191.6 m as against a net profit of Rs 1,072 m reported in the same time a year ago.

In the July-September quarter, the company's loss was Rs 4,445 m.

Another reason behind the fall is reports suggesting there was a raid at company's premises. The stock fell even after the company clarified there has not been any raid at the official and residential premises.

High debt level is another concern. The company has added substantial debt over the past five years but has also raised resources and brought some of it down.

It remains to be seen whether the government's infrastructure push will help the road construction company in the long-term.

#4 Metropolis Healthcare

As Covid cases continue to decline, stocks involved in the Covid testing space have seen their prices come down in recent weeks.

One such stock is Metropolis Healthcare, which is down over 40% since the start of January 2022.

What affected it the most was disappointing quarterly results, following which they saw a steep fall.

For December 2021 quarter, Metropolis Healthcare's margins contracted. It also reported 30% fall in profit after tax. Revenues were muted due to a sharp drop in volumes from a government contract.

The company, however, believes this is a short term phenomenon and its margins were impacted due to increased investments in digital marketing, manpower, and customer experience initiatives to strengthen the brand.

Apart from results, another factor affecting Metropolis is selling by FIIs. Foreign investors owned 30.1% stake in this company as of December 2021 and we know how FIIs have been on a selling spree.

At a time when FIIs are selling, promoters of the company think this is a good opportunity to buy the dip and have loaded up shares.

Metropolis Healthcare founder Sushil Shah bought 150,000 shares, worth Rs 300 m, from the open market.

The correction in diagnostic stocks has been brutal. Metropolis has lost over 40% since start of the year while its peers too are sulking.

Here's what Research Analyst at Equitymaster Aditya Vora has to say about diagnostics stocks...

• The stocks of diagnostic companies were trading at much higher valuations than their historical valuation bands.
  
  Any disappointment in their operating performance would have led to a sharp de-rating.
  
  And that is exactly what happened.
  
  What followed was a set of disappointing quarterly results, leading to declines in these stocks. As I said, when things are priced to perfection, any disappointment will have an adverse impact.
  
  The recent correction in diagnostic stocks has clearly eliminated the valuation froth in many of them.
  
  Sharp falls in stocks like Metropolis and Thyrocare has taken their current valuations at or below their 3 years average PE.

As per Aditya, if the margins stabilise at these levels, a time correction in these stocks could be a good opportunity to accumulate from a long term perspective.

#5 Zomato

Last on our list, we have none other than Indian multinational restaurant aggregator and food delivery company, Zomato.

Zomato and Swiggy are the largest food delivery companies in India. Whenever anyone thinks of getting their food delivered, Zomato or Swiggy are the names that come to mind.

Zomato launched its IPO in July 2021 asking for investments of up to Rs 93.75 bn. Though the company had been making losses, the IPO received a good response. Despite rich valuations, the issue got oversubscribed 38.25 times, thanks to its strong brand identity combined with the IPO craze back then.

To everyone's surprise, the stock got listed at a premium of 51% to its issue price. The upward momentum continued for the next few months.

However, it didn't last long. Following the financial numbers reported for the quarter ended December 2021, the stock has been in a downward spiral.

Tensions between Russia and Ukraine accelerated the selloff. As a result, the share price of Zomato has corrected sharply.

Since the start of this year, Zomato is down 41%.

Recently, Zomato acquired a majority stake in Blinkit (erstwhile Grofers) and entered into the grocery delivery business.

It also dropped a bombshell last week to deliver food under 10 minutes. This decision came under so much discussion that social media sites were flooded with memes and tweets.

First, there are concerns that such quick deliveries will put pressure on delivery partners and create road safety issues.

Then, there's quality worries. Restaurant owners are already worried about the quality of food that can be prepared and delivered in 10 minutes.

The optimists are lauding Zomato's initiative. But most people are livid with this decision. It remains to be seen whether Blinkit's acquisition will propel Zomato to the road of high growth prospects in the coming quarters.

Which other stocks have fallen the most during the period?

Apart from the above, here are other stocks which have faced a lot of heat.

Worst Performing Stocks of 2022

Company	Change in 2022 (%)
Motherson Sumi Systems Ltd.	-39%
Lux Industries Ltd.	-39%
Vaibhav Global Ltd.	-35%
Hinduja Global Solutions Ltd.	-35%
Vodafone Idea Ltd.	-34%
Welspun India Ltd.	-34%
Indiabulls Real Estate Ltd.	-33%
JK Cement Ltd.	-33%
Quess Corp Ltd.	-31%
Indiamart Intermesh Ltd.	-31%
Dr. Lal Pathlabs Ltd.	-31%
Manappuram Finance Ltd.	-30%
MTAR Technologies Ltd.	-30%
Endurance Technologies Ltd.	-30%
Birla Corporation Ltd.	-29%

Source: Equitymaster

What next for the markets?

Going forward, a high inflationary environment is expected to continue, given the Ukraine Russia crisis. This could pose a short term challenge for many companies as high inflation can result in lower margins.

Volatility in the market is also expected to continue as interest rate hikes by the Fed in the coming months are expected to keep FII investors on edge.

While such corrections can cause panic, they also give a buying opportunity for long term investors.

Investors could use the selloff to their advantage and gradually build up long-term holdings in quality companies with strong fundamentals.

You must stay calm amid this storm and use this as an opportunity to invest in quality companies for the long term.

Two weeks ago, we recorded a video highlighting 4 fundamentally strong stocks that you should add to your watchlist.

Do check it out here if you haven't already: Selloff Alert: 4 Fundamentally Strong Stocks to Add to Your Watchlist.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.