Beware! Robinhood investors drive up ADAG & 178 other stocks up to 1,700%

After a long time, Reliance-Adag (Anil Dhirubhai Ambani Group) shares have again become talk of the town due to the manifold returns they have delivered from their March lows.

Reliance Power has advanced 357 per cent to Rs 4.76 on July 1 from Rs 1.04 scaled on March 25, Reliance Infrastructure is up 349 per cent and Reliance Capital 243 per cent. BSE benchmark Sensex rose 35 per cent during the same period.

The stock returns are, without doubt, stellar, but they are no compensation for the more than 98 per cent wealth destruction these stocks did over the past 10 years.

Analysts have already raised red flags on them, advising investors to adopt caution on these counters despite the ongoing momentum.

“Many of the penny stocks are up due to strong liquidity in the market. It seems the new breed of investors are simply buying low-priced stocks without looking at fundamentals. I call them Robinhood Investors. I would advise investors to stay cautious on such counters, including the Adag shares,” said Umesh Mehta, Head of Research at Samco Securities.

On July 1, the Reliance Infrastructure counter witnessed over 60 per cent deliverable volumes, while in the case of Reliance Power, it was 55 per cent. Higher deliverable volumes indicate accumulation of a stock.

A couple of recent developments have kept Adag shares on investor radar. Chairman Anil Ambani last month said Reliance Infrastructure will be completely debt-free this financial year. The company, which is sitting on a debt of over Rs 6,000 crore, has been working towards monetising assets to reduce debt.

Addressing the company's 91st annual shareholders meeting online, Ambani said, “Reliance Infra will be a debt-free company this year.”

The company recently posted a standalone net profit of Rs 30.31 crore for the quarter ended March 31 against a net loss of Rs 1,664.25 crore in the same quarter last year.

Ambani also said promoters of Reliance Power and Reliance Infrastructure have decided to increase their stakes in the two firms. As of March 2020, promoter holding in Reliance Infrastructure stood at 14.7 per cent, that in Reliance Power at 19.29 per cent.

Reliance Power reported a standalone net loss of Rs 264.93 crore for Q4 against a net loss of Rs 507.41 crore for the year-ago quarter. In case of Reliance Capital, the standalone loss was Rs 2,501 crore against Rs 240 crore.

The three Adag firms hold the tag of worst wealth destroyers of last decade: Reliance Power fell from Rs 155.10 in December 2009 to Rs 3.49 on December 31, 2019; Reliance Capital from Rs 857.05 to Rs 14.75 and Reliance Infrastructure from Rs 1,146.90 to Rs 29.40.

Besides Adag stocks, Birla Tyres, Opto Circuits, Alok Industries, Ruchi Infrastructure, JMT Auto, Alchemist, Sintex Plastics, Andhra Cements and Emco are among some 178 penny stocks that have rallied between 100 per cent and 1,700 per cent from their March lows.

“I don’t have any view on the Adag group stocks as they don’t fulfil our fundamental criteria. However, I believe retail investors are mopping up many penny stocks. New investors will again learn their lessons in the hard way,” said G Chokkalingam, Founder of Equinomics Research and Advisory.

“More than 1,000 stocks have already been suspended from the market in last 7-8 years and the majority of them were penny stocks. People have lost Rs 1.5-2 lakh crore on penny counters in last six year,” he said.