What does massive broad market damage (fore)tell about Indian Banking Stocks.....??

Price action in stocks itself reveals a lot about future yet most of the times, it is ignored and thus big trading opportunity arises....
O Ashuji....

I recently came across interesting data point which said that 697 stocks out of 2400 actively traded stocks on BSE (source - www.moneycontrol.com) are trading below 2008 lows. This equates to roughly 30% of actively traded stocks. However, If one were to consider BSE 30, Nifty 50, BSE 100, BSE 200 and BSE 500, picture is slightly better. Please refer to below table.

Number of Stocks Below 2008 lows

(Source - www.moneycontrol.com)

I decided to take exercise a little further and find out debt levels of these companies over 2010-2012 and based on Debt/Market Cap, what is market effectively telling about these companies.

Methodology
1) If Debt/Mkt Cap is >10x, then company is as good as bankrupt (even assuming 10% - which is conservative for such companies - market cap of these companies is equal to one year of interest payment).

2) Debt level increase for such companies over 2010-2012

3) Further filtering these companies with market cap of >Rs 100cr.

4) Here (for the entire data point under analysis) only those companies are considered which have gone below 2008 lows, so actual picture can only be worse than this for banking industry. 

5) Since these companies are effectively declared bankrupt by THE MARKET, how severe banking industry could be impacted ??

LET THE DATA TALK......

Companies with Debt/Mkt Cap > 5x 

1) There are 119 companies with Debt/Mkt Cap >5x.

2) Debt for these companies have increased by 81% over 2010-2012 and on aggregate basis Debt/Mkt cap stands at 12.6 

3) Aggregate Debt stands at Rs 2.61 lac cr

1) There are 88 companies with Debt/Mkt Cap >10x

2) Debt for these companies have by Rs 95k cr (or 91%) over 2010-2012 (pls note data for kingfisher -2010 and 2011- has not been included which would affect increase but not materially)

3) On Aggregate basis Debt/Mkt Cap stands at 17x and aggregate debt stands at Rs 1.99lac cr


Recently Damaged Stocks
Companies with Mkt Cap > Rs 1bn, Price Damage of 20%+ in 2013 and Debt/Mkt Cap > 10x

1) The idea behind putting the above table is to show recency of damage. If damage is old, it is likely to be reasonably well discounted.

2) Debt levels for such companies increased by Rs 55kcr (79% increase) over 2010-2012. Total Debt level for such companies stood at Rs 1.23 lac cr.


CONCLUSIONS

1) I have considered only those companies which have gone below 2008 lows, hence actual picture can only be worse.

2) There are 119 companies with Debt/Mkt Cap of 5x (total debt of Rs 2.61 lac cr) and 88 companies with Debt/Mkt Cap of 10x (total debt of Rs 1.99 lac cr)

3) Recently Damaged Such Stocks (damage of 20%+ in 2013) have aggregate debt of Rs 1.23 lac cr.

4) I have no idea how much of these debt has been recognized by Indian banks but nature of recent fall (and aggregate debt of those stocks) suggest that banking stocks could be significantly impacted over coming months.