How to avoid next Gensol Engineering in your stock portfolio? EXPLAINED with five crucial ways
Indian stock market: Gengol Engineering shares have been under the sell-off heat after ushering into the second half of 2024. Gensol share price touched a lifetime high of ₹ 1,124.90 apiece on the NSE in June 2024, and Gensol Engineering shareholders started booking profit in the energy stock. However, Gensol Engineering shares came under sharp selling pressure last month when misuse of funds and a series of resignations from top office bearers began. SEBI's revelation about the token EV plant in Pune added extra salt to the wounds of Gensol shareholders. Except for 4 April 2025, Gensol's share price has hit a lower circuit on all trade sessions this month, which is enough to understand the wealth erosion in Gensol shareholders' stock portfolio. In the last 10 months, Gensol Engineering shares have fallen around 92% from the lifetime high of ₹ 1,124.90 apiece.
According to stock market experts, Gensol Engineering is not the first and may not be the last stock to strip away your portfolio's entire wealth. So, negating any chances of the next Gensol entering your portfolio is essential.
On detecting Gensol Engineering-like shares in one's portfolio, Avinash Gorakshkar, Head of Research at Profitmart Securities, said, "Before adding any random stock in one's portfolio, one has to deep dive into the company's balance sheet. The first and foremost thing to look at is its debt and promoters' pledge status. An analysis of promoters' stake status in recent times would reveal promoters' confidence in the company's valuations at the existing share price. In the case of Gensol Engineering, the company's promoters were continuously offloading their stake. In the January to March 2025 quarter, they almost trimmed their shareholding by over 50%. So, those who were vigilant about the bulk and block deals immediately took cognizance of this behaviour of company promoters and exited booking losses at that time."
Gaurav Goel, Founder and director at Fynocrat Technologies, believes the red flags were always there—just overlooked. On a suggestion to those who want to learn from the Gensol Saga, Goel said that success in investing doesn't come from following the crowd. It comes from asking uncomfortable questions and digging until the answers are clear.
Goel listed the following five ways to detect the next Gensol in one's portfolio:
1] Deep Dive into Financials: Don't stop at headline numbers if you can do fundamental analysis. A sudden spike in revenue, profit, or borrowings should always trigger deeper scrutiny. Check cash flow consistency, debt levels, and whether the growth is backed by fundamental business drivers or financial engineering. Gensol's rising revenue wasn't matched by cash generation. That disconnect is a significant clue that something's off.
2] Investigate pledged promoter holdings: Pledged shares are a red flag. But more important is why they're pledged. Always check how much of the promoter's holding is pledged. In Gensol's case, 81.7% of promoter shares were pledged — a major red flag suggesting financial stress. If pledging exists, investigate the reason before investing.
3] Avoid the noise: If a company is constantly in the news and drawing excessive attention on social media or forums, it might be best to step back. Excessive popularity often comes before a reality check. Even if it looks like you're missing out on gains, it's better than getting caught in a steep downfall.
4] Be vigilant about corporate developments: Frequent resignations of independent directors, delayed filings, or related-party transactions should never be ignored. These signs often appear before bigger problems come to light. In Gensol's case, there were numerous related-party dealings, and many lacked proper disclosure or clarity. Closely reading the financials and notes to accounts could have raised early red flags and potentially saved investors from exposure.
5] Blind risk vs calculated risk: Without proper research, an investor is simply taking a blind risk. With thorough research, it becomes a calculated risk. Sure, calculated risks can fail, too - but the probability of loss is significantly reduced, and you're better equipped to make informed decisions.
The Gensol Engineering saga is a textbook case of what can go wrong when due diligence is ignored in the face of hype. Once seen as a promising EV and renewable energy player, Gensol attracted massive investor interest. But behind the scenes, serious red flags were already present.
Gensol had supplied EVs to BluSmart under a lease model. However, SEBI's interim order revealed that instead of buying EVs, the promoters allegedly diverted funds towards unrelated personal expenses - including luxury cars, bungalows, and international transfers. These funds were routed through a complex web of related entities with little disclosure.
In response, SEBI barred the promoters from holding managerial roles in any listed company and froze their assets. A forensic audit is underway, and the company is under intense regulatory scrutiny.
On Friday evening, IREDA informed the Indian exchanges about the internal review on the Gensol Engineering developments.
"Following recent developments concerning Gensol Engineering Ltd and its promoters and associate companies, Indian Renewable Energy Development Agency Limited (IREDA) has initiated an internal review in accordance with RBI guidelines and the company's due diligence protocols. Gensol's account is currently under stress but is not classified as an NPA," IREDA said in a press release issued on Friday.
'The Investigation and Risk Committees of IREDA are closely examining the matter. Appropriate actions regarding collaterals and recoveries will be taken based on the outcome of the review,' IREDA added.
Regarding communications from credit rating agencies on the falsified documents, IREDA clarified that it did not issue the letters they referred to. The promoters have diluted their shareholdings without lenders approval, constituting breach of contract. In light of this, IREDA has filed a complaint on above matters with the Economic Offences Wing (EoW) against Gensol on 24th April 2025.
Disclaimer: This story is based on exchange filings by Reliance Industries and is for educational purposes only. The views and recommendations above, if any, are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
First Published: 26 Apr 2025, 10:55 AM IST
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