After opening the day on a positive note, stock markets in India witnessed selling pressure and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the telecom sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 80 points (up 0.2%) and the NSE Nifty is trading up 25 points (up 0.3%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.6%. The rupee is trading at 64.92 to the US dollar.

Gitanjali Gems share price has continued its downtrend and is witnessing selling pressure today. Most of the losses are seen as the CBI has registered a fresh FIR against Nirav Modi in the Punjab National Bank (PNB) fraud case.

The CBI has also noted that the violation of norms for issuance of Letters of Undertaking (LoUs) to benefit Nirav Modi and his uncle Mehul Choksi had been going on since 2010.

Note that the stock of Gitanjali Gems has nosedived on several occasions since 2013, eroding market capitalisation by over 80%. Its promoter’s role in aiding Nirav Modi carry out one of the biggest frauds in the banking history has damaged the stock’s position and credibility. Reportedly, Gitanjali Gems and its two subsidiaries fraudulently acquired letters of undertaking and letters of credit worth Rs 48.9 billion issued through Punjab National Bank.

Gitanjali Gems, the Fall Guy

It has emerged that Gitanjali Gems’ receivables position has been outstanding far longer than that allowed by the RBI. Auditors have pointed out the overdue loans/debentures and overdrawn working capital limits by the company in the latest annual report. In fact, the company has said that it does not even have funds to honour debenture redemption liability of as low as Rs 14.8 m.

We had stuck our necks out, warning investors that Gitanjali Gems’ shiny exterior is a sham. Being in a working capital business of importing gold and exporting jewellery, regulatory restrictions on gold imports in FY13 pushed the company in deeper debt. But the company’s weak management, integrity, and ethics were completely unacceptable to us. Therefore, despite Gitanjali Gems attracting institutional interest during the gold rally, we had clearly asked investors to steer clear of this value-trap.

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