Polycab Share Plunge Sends Shockwaves, Mutual Funds and Foreign Investors in Crisis

A Day of Unprecedented Losses

On January 11, the Indian stock market witnessed a seismic event as Polycab India Ltd’s shares nosedived by over 21%, causing mutual funds to incur losses exceeding Rs 940 crore and foreign investors to grapple with staggering losses of Rs 1,885 crore. The sharp decline was a direct response to the income-tax department’s announcement that it had unearthed “unaccounted cash sales” amounting to about Rs 1,000 crore during a recent search of Polycab’s offices.

Nine Sessions of Financial Fallout

The aftermath of this revelation extended beyond a single day, with mutual funds losing around Rs 1,460 crore and foreign investors facing a substantial dip of approximately Rs 2,936 crore over the last nine trading sessions. The stock’s value declined by 29.1% during this period, attributing the downturn to concerns related to corporate governance and income-tax issues.

Stakeholders in the Crossfire

September quarter shareholding data revealed that mutual funds held a 6.06% stake in Polycab India, accounting for approximately 90.93 lakh shares. Simultaneously, Foreign Institutional Investors (FIIs) maintained a stake of around 12.13%, holding about 1.82 crore shares in the firm. Recent bulk deal data exposed that foreign investor Smallcap World Fund sold 8.51 lakh shares, equivalent to a 0.57% stake, at Rs 3,599.87 per share, totalling a significant Rs 336.64 crore.

Unveiling Unaccounted Cash Sales

The Central Board of Direct Taxes (CBDT) disclosed that Polycab India had engaged in undisclosed cash sales amounting to around Rs 1,000 crore. The CBDT emphasized credible evidence discovered during their searches, escalating the crisis further. In response, Polycab Ltd issued a clarification, asserting its commitment to fully cooperate with the IT Department during post-search proceedings. They maintained that there is no material adverse impact on the company’s financial position.

Q3 Results on the Horizon

As the controversy surrounding Polycab India unfolds, investors eagerly await the company’s third-quarter results scheduled for release next week. The outcome of these results is anticipated to provide insights into the potential repercussions on the company’s earnings and overall financial health.

Polycab India’s Bounce-Back on January 12

Despite the massive plunge, Polycab India’s stock exhibited resilience by closing at Rs 3,980.90 on the National Stock Exchange on January 12, marking a 2.64% increase from the previous close. This bounce-back suggests a potential stabilization in the wake of the previous day’s unprecedented losses.

In conclusion, the Polycab India fiasco serves as a stark reminder of the vulnerability of investors to unforeseen corporate scandals. As stakeholders navigate the financial aftermath, questions linger about the broader implications for corporate transparency and governance in the Indian market. This incident underscores the imperative for due diligence and vigilance in navigating the complexities of the financial landscape.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.