Debt-heavy companies' shares experience huge jump
High risk investments are being made on businesses with large debts in Mumbai and the last month has seen a subsequent rise in their share prices.
In an attempt to reduce their liabilities, several large Mumbai based companies are in the process of selling off their assets and businesses. This has led many to predict that the reduction in their debt that these sales will bring will revive their financial situation. Therefore, investors are placing their bets on these firms. However, whilst these investments can prove high return, they are also high risk.
A long list of companies including GVK Power, Reliance Communications, Jaypee Infratech, and MEP Infrastructure have seen their shares rise from between 25 percent and 80 percent in the last month due to increased investment. Some stocks have more than doubled in July as compared to their performance in June. However, because some of these companies are due to go in front of bankruptcy courts, there is a change that they could lose control over their companies and this is the major risk for their investors. The investors’ bet is that few of them will actually lose control over their firms and most will just be forced to sell off assets to offset their debt.
One company that has seen its shares skyrocket is Jaypee Group whose shares rose by 81 percent in the last month. Another such example is Jaiprakash Associates gained 77 percent in the past and saw their deliverables double in July compared to May.
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