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Wednesday, July 24, 2013

Gitanjali Gems - Free Fall in Stock Price Continues...

Gitanjali Gems had an incredible run in the first half of 2013. Its share price surged from about Rs. 300 in the beginning of the year to a peak of Rs. 649 in April 2013, giving multibagger returns to its delirious shareholders.
Now, when a stock exhibits such incredible out-performance, it becomes a target for Bear raiders, who lie in hiding looking for chinks in the stock’s armour. The Bears got their chance in May/ June 2013 when gold prices began to plunge and retailers like Gitanjali Gems who had huge inventory suffered MTM losses. To make matters worse, the Govt. decided to discourage further import/ consumption of gold by imposing onerous terms on its import.
This was a golden opportunity for the Bears. They ganged up and launched a concerted no-holds barred attack on all jewellery retailers like Gitanjali Gems, TBZ, Ganesh Jewellery, Titan Industries etc.
Gitanjali Gems, which was the out-performer so far, was the worst affected in the face of the fearsome Bear attack. It tripped a series of lower circuit filters and ended 60% lower in less than a week.
A few brave Bulls did rush in to rescue the embattled stock. However, the onslaught of the Bear attack was so fierce that the Bulls had to beat a hasty retreat after suffering huge losses.
Sadly, one of the prominent victims of the Gitanjali Gems debacle is N Jayakumar of Prime Securities. As per the Annual Report of Prime Securities, N. Jayakumar holds 225,000 shares of Gitanjali Gems which he bought for Rs. 7.68 crores at Rs. 341 each. At today’s CMP of Rs. 93, N. Jayakumar has already suffered a loss of Rs. 5.58 crore. In addition, Prime Broking Company India Ltd, a wholly owned subsidiary of Prime Securities, holds a massive chunk of 17,02,269 shares of Gitanjali Gems. Assuming these were bought at the same time, the loss on this holding is of whopping Rs. 42.22 crore.

However, this may only be the tip of the iceberg. According to the ET, Prime Securities owes more than Rs 80-100 crore to NSE in the equity derivatives segment owing to unusual trades in Gitanjali Gems. NSE fears that Prime Securities may default and has held back payout to Prime. NSE & SEBI are also probing whether Prime Securities/ N. Jayakumar are engaged in price manipulation of the Gitanjali Gems stock price.
N. Jayakumar/ Prime Securities Portfolio Of Worthless Stocks
Surprisingly, though N. Jayakumar comes across as a savvy stock picker in his TV interviews, he has invested huge funds in a number of rubbish stocks through Prime Securities. If you look at the annual report of Prime Securities for the year ended 31.3.2012, you will find the following stocks in the portfolio:

It is surprising that N. Jayakumar had the conviction to invest such large sums of money in dubious and unknown companies like Aanjaneya Lifecare, Greycells Entertainment, Intense Technologies, IOL Netcom etc.

What makes the situation worse is that N. Jayakumar has pledged the holdings of Prime Securities to raise short-term borrowings. Those borrowings may have in turn been invested in similar worthless stocks in the hopes that there will be a quick multibagger. Also, as the value of the pledged shares have plunged, the lenders must be hounding N. Jayakumar for more collateral.