Amid the row involving alleged misuse of funds by Gensol Engineering Ltd.'s promoters, stock market expert Vijay Kedia took to social media platform X to highlight "10 red flags" which investors and market observants should track to identify potential scams.
"There are many 'Gensol' still hiding in the cupboard—waiting to tumble out with time. Let's hope it's not too late by then," he said.
At the forefront, said Kedia, is that such companies "talk big and overpromise". They also maintain constant media presence through news coverage, hyperactive social media posts, and endless interviews, he added.
They also "magnify" the smallest developments, and raise funds frequently without clarity on deployment, the seasoned investor pointed out.
The fifth point which Kedia noted is that such firms diversify into unrelated businesses "just to ride trending narratives". Sixth, he said, is that they overuse flashy buzzwords like "AI-powered", "next-gen" and "disruptive" to sound innovative without 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, he said.
Such firms have "high levels of promoter pledging", Kedia said. The ninth red flag he highlighted is of "frequent exits" of key managerial personnel, and 10th warning sign is of excessive related-party transactions.
Kedia added that it's "wiser to be wary" of companies that exhibit these kinds of red flag that point towards a potential scam.
There are many 'Gensol'still hiding in the cupboard—waiting to tumble out with time. Let's hope it's not too late by then.
10 Red Flags That Scream Before a Scam.
It's wiser to be wary of companies that:
1. Talk big and overpromise
2. Maintain constant media presence — through…Kedia's post comes in the backdrop of the Securities and Exchange Board of India barring Gensol Engineering, its Chief Executive Officer Anmol Singh Jaggi and Promoter-Director Puneet Singh Jaggi from securities markets for alleged diversion of funds.
The market watchdog has also restrained both the company officials from holding any key managerial positions. Gensol has been asked to hold the stock split announced by it, and the regulator has directed the appointment of a forensic auditor to examine its books of accounts and those of related parties.
The SEBI investigation revolves around the Rs 975-crore loan raised by Gensol to purchase 6,400 electric cars. Only 4,704 electric cars were actually purchased for Rs 567.73 crore. That left over Rs 200 crore unaccounted for.
The sanctioned loans were allegedly routed to a dealer, Go Auto Pvt., which in turn redirected the funds to various entities linked to the Jaggi brothers, including Ventures LLP, Matrix Gas and Renewables Ltd., and Wellray Solar Industries Pvt. These funds were then misused for personal expenses as well, including a luxury apartment in DLF's Camellias project in Gurugram.
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