{"id":251334,"date":"2025-05-22T01:25:14","date_gmt":"2025-05-22T01:25:14","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/the-investors-survival-guide-to-spotting-bad-promoters-before-its-too-late\/"},"modified":"2025-05-22T01:25:14","modified_gmt":"2025-05-22T01:25:14","slug":"the-investors-survival-guide-to-spotting-bad-promoters-before-its-too-late","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=251334","title":{"rendered":"The Investor\u2019s Survival Guide to Spotting Bad Promoters (Before It\u2019s Too Late)"},"content":{"rendered":"


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A couple of quick announcements before I begin today\u2019s post.<\/strong><\/p>\n

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2. Relaunch of Value Investing Almanack:<\/strong> <\/mark>I have relaunched my premium newsletter, the Value Investing Almanack (VIA)<\/strong>, which subscribers have called \u201c\u2026the best source in India on Value Investing, for both beginners and experts.\u201d Click here to read more and subscribe to VIA at a special launch price<\/a> (available only for the first 100 subscribers). Also, if you wish to check out the March 2025 VIA issue before deciding to rejoin,\u00a0click here to download<\/a>.<\/p>\n

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The Investor\u2019s Guide to Spotting Bad Promoters Before It\u2019s Too Late<\/h2>\n

We Indians love stories. From Ramayana to Reliance, we\u2019re a country moved by narratives. And when it comes to investing, perhaps no story sells better than that of the visionary promoter \u2014 the larger-than-life figure who claims to be solving big problems and creating generational wealth for shareholders (don\u2019t ask, which) in the process.<\/p>\n

Now, I don\u2019t mean here that all such stories that Indian promoters tell us are bad. Some are genuine. But most are just well-packaged, and a few are designed to do just one thing \u2014 take you for a ride. And when you peel back the layers of some of these stories, what you often find is not innovation or integrity, but obfuscation, opportunism, and in some cases, outright fraud.<\/p>\n

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The problem isn\u2019t that we don\u2019t see it, but that we often refuse to. Because hope, in the market, tends to speak louder than evidence. Sometimes, ironically, hope becomes our investing strategy.<\/p>\n

One recent example that captured attention, and then disillusionment, is Gensol Engineering. What started as a promising solar and electric mobility play, soon began to show cracks that we have seen far too many times before. From questionable related-party transactions to preferential allotments at steep discounts, from opacity in financial disclosures to the exits of board members and auditors, the Gensol case has unfolded like a slow-motion version of a promoter script that many of us have watched before. And yet, it worked, until it didn\u2019t.<\/p>\n

The crux of the fraud was that public money was being used in ways that disproportionately benefited entities linked to the promoters. The complexity of these transactions was high, but the intent, as it came to light, was painfully simple. The promoter was in the driver\u2019s seat, but minority shareholders were just passengers along for the ride, and somewhere along the way, trust was left by the roadside.<\/p>\n

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Now, the problem isn\u2019t just Gensol, and so I don\u2019t want to delve much here. The real problem is systemic. Our markets are filled with examples where promoters have treated listed companies as private fiefdoms. Whether it\u2019s Satyam, Yes Bank, DHFL, Karvy, or Religare, the playbook remains remarkably consistent.<\/p>\n

The common thread is that of promoters who thought of the company not as something they were entrusted to build, but as something they owned entirely, including your money.<\/p>\n

Float a few private entities. Use the public company to fund them. Keep disclosures murky. Keep the board compliant. Fire the auditor if they ask too many questions. By the time minority investors realise what\u2019s happening, it\u2019s often too late. The wealth has already been transferred, and the damage already done.<\/p>\n

What\u2019s more troubling is how we, as minority shareholders, have somehow convinced ourselves that a little bit of manipulation is okay. That if the stock is going up, everything else can be forgiven.<\/p>\n

Ask around and you\u2019ll hear things like, \u201cSab karte hain,\u201d or \u201cAt least he\u2019s growing the business.\u201d And that\u2019s the mindset that\u2019s costing us investors the most. We don\u2019t look for clean businesses anymore. We just look for those that are less dirty<\/em> (the \u2018lesser evil\u2019).<\/p>\n

If a promoter is cutting corners, lying in footnotes, or treating the company like his family\u2019s piggy bank, it\u2019s only a matter of time before something breaks. And when it does, it\u2019s not the promoter who pays, it\u2019s you and me, as a minority shareholder. Always.<\/p>\n

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And yet, it doesn\u2019t have to be this way. There are Indian companies that play it straight (at the \u201ccentre of the court\u201d as Buffett would have said). They disclose clearly, and treat minority shareholders like owners. These companies exist, it\u2019s just that they\u2019re not usually the ones making headlines, and their founders are not on business channels or podcasts with a million views.<\/p>\n

Basically, what we need is a mindset shift. We need to stop asking, \u201cHow fast is this company growing?\u201d and \u201cWhat kind of return can this stock give?\u201d and start asking, \u201cHow fairly is the business being run?\u201d<\/p>\n

That\u2019s why I believe, more than ever, that management quality isn\u2019t just one of the things to look at while analysing a company. It\u2019s the<\/em> thing. You can be off on your valuation. You can miss an industry trend. You can overpay a little. But if you\u2019ve backed a crook or a smooth talker with no conscience, no financial model will save you. The numbers may look fine today, but the rot usually starts somewhere in the footnotes and the disclosures nobody reads.<\/p>\n

We also need to stop pretending we\u2019re victims. We\u2019re not. We enable this system every time we run after the next hot stock or theme without asking basic questions, like:<\/p>\n