If you are aware of the Dotcom bubble of the 2000s you might recollect how some companies went on to give multifold returns to investors over a short period of time, or more correctly how some not-so-fundamentally-great companies. Something similar has happened on Indian Bourses in the recent bull run, which is argued as one of the best comebacks in Indian Stock market history. This is the story of Adinath Textiles, which has given a return of 3,414% over the past year more importantly with zero sales for the last two financial years. Let's look at the story...
Adinath Textiles is a Yarn manufacturer based in Mumbai. It was founded in 1979 and got listed on BSE in 2012. The irony is despite being a Yarn manufacturer it has not woven a single thread in the past two years. Its impressive machinery from abroad has been collecting dust for the past two years. Its company management wrote in its latest annual report,
“Due to no job work orders and accumulating losses, the company discontinued operations in the financial year 2019-20. Therefore, there was no revenue from operations during the financial year 2020-21"
That begs the question is despite no orders, no revenue from operations, how in the world the stock price has been soaring?
Ladies and gentlemen, let me introduce you to "Operators". These people inflate the price of stock more often a penny stock so as to attract retail investors. And when it happens, they dump the stocks and the price comes crashing down.
Something similar happened with Adinath Textiles, it went all the way up to Rs 96.90 on 28th September 2021 from being Rs 1.35 on 20th October 2021. And when enough retail investors came on board and liquidity increased, the "Operators" dumped the stock to bring prices down to Rs 47.45 as of 19th October 2021.
What makes the matter even more suspicious is no analysts were keeping a tab on this stock, no one is talking about the stock, the only distant reason relating to the company is the rise in income from other sources which is due to the company renting out its factory for warehousing. But this reason doesn't even come close to being any trait of being a multi-bagger stock.
What exactly is the reason behind this bull run is difficult to pinpoint but what we do know is that BSE has categorized Adinath Textiles as ‘GSM: Stage 2’ company, which is as per Sebi’s Graded Surveillance Measures (GSM) aimed at alerting investors to be extra cautious while dealing in shares of the companies under the surveillance.
Now, this doesn't mean that every stock that has delivered handsome returns over the recent past is proof of foul play, some companies such as Tata Power have sufficient reasons explained by us in this article (The Synergy of the Tata's) to back the amazing returns they have given to investors. We are only of opinion that before blindly running with your money to buy the hot stock of the town, know the reason behind the jump in price.
Also, let us know in the comment below if you think the laws regarding such an unusual price movement should be stricter so as to protect retail investors?
Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.
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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.