Companies with high debt should raise a red flag as far as investors are concerned. Shares of these companies are high risk.
If sales were to slowdown, the net profit will take a double blow because the interest payments will remain the same. Thus the market looks at companies with high debt sceptically.
Disclaimer:This is for information purposes only. These are not stock recommendations and should not be treated as such. Learn more about our recommendation services here... Also note that these screeners are based only on numbers. There is no screening for management quality.
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As per Equitymaster's Stock Screener, these listed companies have the highest debt in India right now...
The below list is filtered by taking into account the company's latest debt to equity ratio and total debt.
#1 ADANI GREEN ENERGY
#2 TVS MOTORS
#3 ADANI TRANSMISSION
#4 HDFC
#5 TATA MOTORS
High debt companies come under huge trouble in a rising interest rate scenario and during uncertainty. In such environment, your job is to sit on stocks which have a decent track record, pay regular dividends, and have low or zero debt.
Dividend paying stocks because your portfolio will have some cushion from the yields they provide.
And debt free because higher interest rates can just as easily bring down the high debt companies.
What is considered a high level of debt?
Analysts use the debt to equity ratio to measure how much debt a firm uses relative to its equity.
A high debt to equity ratio is risky. Ideally, a ratio less than 1 is considered good, while anything above 2 is highly risky.
We highly recommend you check out Equitymaster's Indian Stock Screener and its segments. Here are some of the screens related to debt.
Debt Free Companies
Top Companies with Debt Reduction
Could higher interest rates bring down high debt companies?
Higher interest rates need not spell doom for companies. In fact, in the case of some companies such as banks and NBFCs, a higher interest rate environment could propel growth.
Moreover, debt can help companies grow and expand. It's only when the debt is unserviceable that the company will find itself in trouble.
Which companies have no debt?
As per Equitymaster's Stock Screener, these are some of the companies which have no debt on their books.
#1 BHARAT ELECTRONICS
#2
#3 DIVIS LABORATORIES
#4 AVENUE SUPERMARTS
#5 ABB INDIA
Investors have a liking for debt free stocks as they have the ability to tide over higher interest rate environments.
Should you totally avoid interest rate sensitive stocks?
It depends upon an individual's risk appetite. In a rising interest rate scenario, high debt stocks are the ones you should definitely avoid.
As central banks increase interest rates to curb inflation, it puts a lot of pressure on stock prices. Resultantly, interest rate sensitive stocks like high debt companies bear the brunt.
Create Your Own Queries
Equitymaster's powerful BSE/NSE Stock Screener allows you to screen stocks based on both pre-set and your own criteria.
Toyota holds the title of the world's most indebted company outside the financial industries, with a debt of $221.13 billion. Amazon ($138.91 B) and Apple ($109.28 B) top the list of the world's most indebted tech companies.
The most indebted companies were in the oil and gas, utilities, telecommunication and automotive industries. The world's most indebted company in 2021 was Toyota.
Of the $33T of debt, roughly 78% is owned by the public (70% US vs 30% International). The major US public owners include the FED ($6T, but they are no longer buyers), mutual funds, banks, states, pension funds and insurance companies.
The industries with the highest debt-to-equity ratios tend to be those requiring large capital expenditures and infrastructure investment such as energy production, telecommunications, and utilities.
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Credit cards continued to be the main source of debt for U.S. adults, accounting for more than double any other source cited by survey respondents. Personal education loans crept up to the third biggest source of debt, compared to fifth-place last year.
All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
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