It is around september, 2018. DHFL again did not have a stronger ROA this year. However, something weird starts happening to the share price. 10-15% fall in a day is normal however 40-50% brings panic everywhere. This happens:
Now definitely, we thought the Quality was poor and this high growth was not possible. However, generally such falls happen slowly and market readjusts its evaluation of business. However a fall of 50% in a day, there is definitely something known by the market which we are missing.
Over the next few months as it turned out, the promoters were cooking the books of the company. Large amounts of fictitious loans were given by the promoters.
Frauds are happening since the beginning of financial markets. However, going through many cases of frauds we can develop some patterns to avoid such in future. Allocation protects in such cases from a complete wipeout.
In this particular case of DHFL, we still haven’t found a concrete way of knowing before whether it was a fraud. As per our opinion, we could have said it was a failed business but fraud was less chance.
If any of you may have found a way, we would love to know how to do so and what you would have done.
May these cases help you!May we all learn together!