MUMBAI, AUGUST 21: The BSE Sensex is shooting up to new highs every day, but the view from India Inc’s underbelly is not so rosy.

Even as stock market pundits reel out corporate results as one of the reasons for the bull run, there are also quite a number of rotten apples that have destroyed investor wealth with huge accumulated losses and negative net worth.

A study by The Indian Express shows that top 100 companies in the loss-makers’ list have accumulated losses of Rs 9,160 crore for the year-ended March 2005 — enough to set up a 2,000 mw power plant.

Nova Electro Magnetics tops the list with an accumulated loss of Rs 661 crore, followed by Ispat Profiles of the Mittals (Rs 618 crore loss) and Mafatlal Industries (Rs 599 crore).

‘‘These companies can be broadly categorised into two sections. Companies that lost out due to tough competition or industry recession come in the first category. The second category are companies that were mismanaged and looted public money,’’ said NSE broker and investor Pratip Bhavnani.

Such huge losses mean destruction of wealth belonging to the public and banks. It also means job losses and plant closures. As some of these companies have shut operations, banks which lent huge funds have classified such loans as non-performing assets (NPAs).

Remember, the erosion of net worth doesn’t happen overnight. It takes four to five years of consistent losses to get into that slot.

Except for some cases like Birla VXL, asset reconstruction firm ARCIL was unable to do much in the case of big loss-makers. Ditto is the case with banks despite having vast powers under the new Securitisation Act.

It’s no surprise that most of these companies are not traded on the stock exchanges now. The Nova Electro Magnetics scrip was suspended by the Bombay Stock Exchange in 1999. As the company continued to violate listing rules, the scrip was delisted three year later. ‘‘Funds of banks and investors are stuck in these companies,’’ says corporate analyst and stock dealer Venkat Aiyer.

In fact, all the top loss-makers have managed to erode their net worth (equity and reserves) — which means they’re now functioning without any capital or reserve funds.

As per the rules, a company will then be declared sick and come under the purview of the Bureau of Industrial and Financial Reconstruction (BIFR) when the net worth is eroded. That’s why even the Securitisation Act has not helped banks to recover their loans from loss-makers.

It’s not that sick companies will remain sick for ever. BIFR works out suitable restructuring packages to turn around a sick company. ‘‘There are some companies which mismanage their operations and then take refuge under BIFR in order to avoid repaying bank loans,’’ says a corporate lawyer (dealing with BIFR cases), who did not wish to be identified.

In many cases it’s pure mismanagement. Nova Electro Magnetics is a major defaulter with three group companies defaulting nearly Rs 250 crore bank loans. Mittal-owned Ispat Profiles is making huge losses despite the fact that the steel sector has turned the corner. Ispat Industries, another group company, is however making profits. Sajjan Jindal-owned Southern Iron and Steel has an accumulated loss of Rs 355 crore.

No wonder small investors who invested in these company’s shares are an unhappy lot. So are the regulators and bankers. Interestingly, many of these companies’ balance sheets are heavily qualified by auditors but except a mention in the annual reports, nothing happens to the wealth destroyers. And banks can’t move against companies which are under BIFR.

Says D.R. Dogra, executive director of rating firm CARE: ‘‘We have to take a case-by-case approach to see how corporate governance norms are violated.’’

All India Finance Brokers and Depositors Assciation Secretary Shyam Ahuja says the promoters take advantage of the lack of unity and information among the small investors. ‘‘We have received complaints about many companies where promoters have raised funds, become sick and defaulted. They take shelter under BIFR and reschedule the payments to as long as seven years.’’