Close on the heels of the massive cut in Gensol’s share price and the SEBI halt, Vijay Kedia, a seasoned investor and stock market expert, took to the social media platform X to warn investors of potential scams before investing in a stock. He said, “There are many Gensol still hiding in the cupboard.” The investor’s post came amid the row involving Gensol Engineering’s management diverting funds for personal use.
Vijay Kedia said there are “10 red flags that scream before a scam.” Let’s hope it’s not too late by then, he added.
The very first point, said Kedia, is that such companies “talk big and overpromise”. Secondly, they maintain a constant media presence through news coverage, hyperactive social media posts, and endless interviews.
Not just that, they also “magnify” the smallest developments and raise funds frequently without any clarity on where they will be deploying them, Kedia pointed out.
Such companies diversify into unrelated businesses “just to ride trending narratives”, Kedia noted the fifth point. Further, he said that these companies “overuse flashy buzzwords” like “AI-powered”, “next-gen”, “disruptive”, etc., to sound innovative without any real substance.
The seventh red flag to watch out for is that lavish promoter lifestyles are flaunted, and the same don’t match with the company’s performance.
The seventh warning to watch out for is the lavish lifestyle of promoters that is flaunted, which does not align with the company’s performance.
Lastly, he added that firms with “high levels of promoter pledging” are a red flag. Plus, if there are “frequent exits” of key managerial personnel and signs of excessive related-party transactions, they are a big red flag.
At the end, the stock market expert wrote that there are many red flags beyond this list and advised investors to remain vigilant and cautious.
Kedia’s post came against the backdrop of Gensol Engineering’s CEO, Anmol Singh Jaggi, and Promoter Puneet Singh Jaggi being barred from the securities market by the Securities and Exchange Board of India for alleged diversion of funds, one of the key points the seasoned investor pointed out in his post.
The SEBI’s investigation is around the Rs 975 crore loan raised by Gensol to purchase 6,400 electric cars. However, the company purchased only 4,704 electric cars for Rs 567.73 crore. That left over Rs 200 crore unaccounted for.
On Thursday, the share price of Gensol Engineering hit the lower circuit for the second consecutive session after SEBI barred the promoter and founder, Jaggi brothers, from the securities market. The stock price touched a new 52-week low of Rs 116.54 today. Also, the stock is now placed under the ESM 1 category. Stocks under ESM 1 are subject to stricter surveillance and may experience limitations on trading, like a price band of 5% or 2% (whichever is applicable) is enforced.