In 3-trading sessions since the announcement of a cut in corporate tax to an effective 25.71 per cent, the Sensex has surged nearly 9 per cent. Even as it is just a few percentage points away from record highs, the shares of Zee Entertainment have plunged to new 52-week lows.
Why has Zee Entertainment Shares hit 52-week lows?
Let's begin with the fact that fundamentally nothing has changed for Zee Entertainment. The company continues to perform well and is one of the beneficiaries of a cut in the corporate tax rate. It is a profit making dividend paying company.
The problem is not with the company, but, with the group. The Essel Group of which Zee Entertainment is a part has some debts to pay to mutual funds. The promoters of Zee Entertainment had pledged their shares to mutual funds and Sept 30, 2019 is the deadline by which mutual funds would want their money back or else they would sell the pledged shares of Zee. Some mutual funds have even agreed to extend the deadline.
However, some have already begun selling the shares of Zee Entertainment as hopes are fast fading that the promoters would be able to pay back the debt by Sept 30, 2019. This has led to some serious fall in the shares of Zee Entertainment. So, it is largely a problem of the group and not of Zee Entertainment per se.
Will the selling pressure last?
It is always difficult to predict the extent to which mutual funds would go ahead and dump a particular stock. The whole point is once they have recovered their amounts through sale of pledged shares, the selling would subside. It is also highly possible that value buying may emerge at lower levels.
Remember, this is a profit making dividend paying company. However, the debt pressure from the group can always be a burden. Remember, the ADAG group had some very good profit making companies, but, the debt burden in RCOM weighed on the group.