Stressed Stocks Zoom 31% as New India Law Sparks `Rally of Hope'

(Bloomberg) -- A bunch of stressed Indian stocks are getting a lot of investor love.

A Bloomberg index of 11 indebted companies that are in bankruptcy court surged 31 percent in December on speculation that the new insolvency law will push the firms’ founders and lenders to find quick solutions. In comparison, the broader S&P BSE500 gained 3.5 percent.

Once the so-called National Company Law Tribunals, or NCLT, dispatch an indebted firm into insolvency proceedings, a court-appointed resolution professional has at most nine months to chart out a repayment plan, sell assets or revive businesses. If no agreement is reached, the company faces liquidation.

“The prospect of a faster resolution is drawing in investors to NCLT stocks,” said Purvesh Shelatkar, senior vice president at Mumbai-based Centrum Broking Ltd.“The rally is of hope that some of these can become profitable businesses. Also, once in NCLT, investors have a clearer understanding of the company’s financial position.”

Castex Technologies Ltd. in December capped its best monthly gain since July 2016 after it was admitted into insolvency while Unitech Ltd. surged 56 percent after the government decided to drag it into the bankruptcy court.

The index compiled by Bloomberg comprises nine listed companies who are among the "dirty dozen" -- the first batch of defaulters taken to insolvency court in June. It also includes two indebted firms that were dragged to the NCLT in high-profile cases in December.

©2018 Bloomberg L.P.