Gensol Engineering: What should retail investors do after SEBI action against promoters?

Gensol Engineering: The latest order by the stock market regulator, Securities and Exchange Board of India (SEBI), against Gensol Engineering's promoters – Anmol Singh Jaggi and Puneet Singh Jaggi – has brought wide-ranging financial misappropriations to light.

Gensol Engineering shares, which were already in a freefall over the last 1.5 months amid allegations of mismanagement, misappropriation of funds and credit rating downgrades, shed another 5% today, April 17. This was the second day in a row when the stock hit the 5% lower circuit and the fifth straight day of fall. The scrip has lost over 80% of its value during this period, with Gensol Engineering stock trapped in the lower circuit on most trading days in March and April.

From its all-time high of ₹1,126 per share touched in June 2024, the stock has tumbled to ₹117.50 today, leaving investors poorer by ₹3,853 crore.

Gensol Engineering: A trap for retail investors?

To protect the interest of retail investors, SEBI halted the proposed 1:10 stock split by Gensol Engineering and highlighted a sharp fall in the promoter holding, with the risk of further reduction, which it said could trap "gullible investors".

"The promoter holding in the company has already come down substantially, and there is a risk of the promoters further offloading the shares on gullible investors. Thus, investors need to be made aware of the alleged wrongdoings detailed above through regulatory action," it said on Tuesday, April 15.

SEBI order also highlighted a sharp fall in promoter holding to 35% as of March 31, 2025. This is nearly half of the 62.65% stake promoters, Anmol Singh Jaggi and Puneet Singh Jaggi, held at the end of December 31, 2024. The promoter holding has come down while the debt in the company has risen substantially from nil in FY17 to ₹1,045 crore in the first half of FY25.

Source: SEBI

Additionally, SEBI flagged the risk of promoter shareholding falling further, thereby increasing the stake held by the public.

“We have been informed by IREDA, vide email dated April 11, 2025, that the promoters have created pledges for 75.74 lakh shares of Gensol. Further, the latest pledge invocation data available on the BSE website indicates that more pledges have been invoked during this month. This would lead to the possible conclusion that promoter shareholding in Gensol would become even lower — maybe negligible — if IREDA were to invoke the pledge created by Anmol Singh Jaggi and Puneet Singh Jaggi,” SEBI said.

Therefore, to protect retail interest, SEBI felt it was essential to alert investors about the alleged wrongdoings.SEBI also halted the 1:10 stock split, saying that this corporate action “is likely to attract more retail investors to the scrip”. At this stage, allowing this Corporate Action may not be in the interest of the investors, it said.

What should retail investors of Gensol Engineering do?

Highlighting the risks of investing in small-cap and micro-cap stocks, having a market capitalisation of less than ₹1,000 crore, Kranthi Bathini of Wealthmills Securities said, “One needs to understand that these small-cap and mid-cap stocks come with these kinds of execution and corporate governance risks.”

He added that because of these corporate governance issues, retail investors can exit Gensol Engineer shares if they get an opportunity.

Gensol Engineering stock is locked in back-to-back lower circuits, with no buyers available. On the Indian stock exchanges, investors had placed sell orders for 4,857,113 shares with no buy orders in place, according to data available on BSE and National Stock Exchange (NSE), leaving investors trapped.

“With shares down 90% from peak levels ( ₹1,147 to ₹129) and SEBI's interim orders against the company and its promoters, the risk profile has become unacceptably high. SEBI's actions, while important, may be insufficient to fully protect retail interests as they come after significant value destruction has already occurred. The alarming decrease in promoter holdings in Q4, coupled with serious allegations of misusing ₹978 crore in loans for personal expenses, raises substantial governance concerns,” said Atul Parakh, CEO of Bigul.

Parakh added that retail investors in Gensol Engineering should consider exiting their positions given the severe deterioration in company fundamentals and regulatory red flags.

Is SEBI order enough to protect retail investors?

The placement of the company in both the 'T' group and Stage-1 of Enhanced Surveillance Measures further limits liquidity and trading opportunities for existing shareholders. 

Downgrades of credit ratings by ICRA and CARE, along with the lack of institutional holding by domestic mutual funds, highlight the absence of confidence in the financial stability of the company, said Parakh. 

He added that considering these warning signs and the current regulatory focus, the retail investor holds considerable additional downside risk with small chances of near-term recovery.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.