Equity Investors Beware

After the 11300 Crores fraud reported by PNB, where irresponsible employees were reason for the fraud to escalate to such a high level, where it is now called the biggest bank fraud ever. Soon after the news came out we are getting several such news of frauds hitting the media. Rotomac pens have defrauded the banks to the tune of 800 Crores, which in a couple days went on to become a 3200 Crore fraud. In between this news, there was news that City Union Banks LOU’s have got compromised by many foreign banks.

As enquiries with the employees of the bank and raids recovering assets from defaulted persons were being done. Nirav Modi, the prime accused in the PNB case sends a letter to the bank stating, “In the anxiety to recover your dues immediately, despite my offer, your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues leaving a trail of unpaid debts.” He says that, he would have listed his company and collected money from the markets, which would have helped him clear the bank dues. This was shocking, in a period where start-ups are eyeing the markets to help them make good of their investments in many of the loss making entities that they are funding. Even entrepreneurs are looking to take money from the markets to fund their losses.

The lessons here could be – investors will easily be fooled; at least that is what many business people are thinking. Equity investors need to be very careful on which companies they invest their money in, because one can easily get carried away by the ads and promotions some bad companies will do to get their attention. Once in, getting out will be a bigger challenge.

Gitanjali, the listed company which is also in this scam was out of favour of professional investors since 2013, when the company’s balance sheet  had discrepancies showing up. Today, there are very few fund managers invested in this stock. Even the promoters have pledged more than 80% of their shares in the company. Retail investors who own major part of the company are the biggest losers.

Among other considerable losers are LIC and a few Foreign Portfolio Investors. All these developments bring the understanding that, giving the money to be managed by professional managers is a best choice than doing it on their own. Off late, SMS tips on stocks have also become high and it is found that most of the companies that were referred in those SMS tips were big losers in the current fall.

Stay away from tips and if you don’t have the time and knowledge to learn about the markets before investing, it is good to invest into Mutual Funds or take help of professionals on both managing and advising on investments.