Why is Saraswati Commercial (India) Ltd falling/rising?

Recent Price Movement and Market Context

On 28 January, Saraswati Commercial’s share price closed at ₹12,238.35, down ₹425.10 or 3.36% from the previous close. The stock underperformed its sector, which gained 2.58% on the same day, and also lagged behind the broader market indices. Intraday, the stock touched a low of ₹12,200, with heavier trading volume concentrated near this low, signalling selling pressure. Furthermore, the stock is trading below all key moving averages – 5-day, 20-day, 50-day, 100-day, and 200-day – indicating a sustained downtrend.

Investor participation has also waned, with delivery volumes on 27 January plunging by 72.8% compared to the five-day average, suggesting reduced conviction among shareholders. Despite this, liquidity remains adequate for modest trade sizes, but the lack of strong buying interest is notable.

Fundamental Weaknesses Weighing on the Stock

The primary driver behind Saraswati Commercial’s share price decline is its weak fundamental profile. Over the past year, the stock has delivered a negative return of 25.84%, starkly contrasting with the Sensex’s positive 8.49% gain during the same period. This underperformance is compounded by deteriorating profitability and sluggish sales growth.

Latest six-month results reveal a 28.51% contraction in net sales to ₹104.75 crores and a 27.55% decline in profit after tax (PAT) to ₹83.88 crores. These figures underscore a troubling trend of shrinking revenues and earnings, which has eroded investor confidence.

Long-term growth prospects appear muted, with net sales expanding at a modest annual rate of just 2.64%. The company’s average return on equity (ROE) stands at 12.84%, which is considered weak for a financial services firm. Moreover, the stock’s valuation remains elevated with a price-to-book ratio of 1.3, suggesting it is trading at a premium despite its faltering fundamentals.

Valuation Concerns and Market Sentiment

Investors are also wary due to the stock’s expensive valuation relative to its peers. While profits have plummeted by 87.4% over the past year, the share price has not adjusted proportionately, indicating a disconnect between price and earnings reality. This premium valuation amid declining earnings raises questions about the stock’s near-term upside potential.

Adding to the negative sentiment is the absence of domestic mutual fund ownership, which remains at zero despite the company’s size. Mutual funds typically conduct thorough due diligence before investing, so their lack of participation may signal concerns about the company’s business model or valuation at current levels.

Over the last one month and year-to-date periods, Saraswati Commercial has underperformed both the Sensex and its sector peers, reinforcing the narrative of a stock struggling to keep pace with broader market gains. This relative weakness is a key factor behind the recent share price decline.

Conclusion: Why the Stock Is Falling

In summary, Saraswati Commercial (India) Ltd’s share price decline as of 28 January is primarily attributable to its weak financial performance, including significant declines in sales and profits, coupled with an expensive valuation that does not reflect the deteriorating fundamentals. The stock’s underperformance relative to the Sensex and its sector peers, alongside falling investor participation and absence of institutional backing, further exacerbates negative market sentiment.

While the broader Finance/NBFC sector has gained ground recently, Saraswati Commercial’s inability to keep pace highlights underlying challenges that investors are factoring into the stock price. Until the company demonstrates a meaningful turnaround in growth and profitability, the downward pressure on its shares is likely to persist.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →