Why did ED take action on Manappuram Finance?

The Enforcement Directorate (ED) has taken major action on Manappuram, a non-banking financial finance company (NBFC) involved in the business of gold loans. The central agency has seized assets worth Rs 143 crore by raiding the premises linked to the company’s MD and CEO V P Nandkumar. The probe agency had on Wednesday launched search operations at six premises in Thrissur linked to Nandakumar. This action has been taken under money laundering case. After ED’s action, the stock of the company is under heavy pressure. During the trading on Friday, the company’s stock fell by up to 16%.

What are the allegations?
Finance company Manappuram is alleged to have deposited Rs 150 crore without the approval of the Reserve Bank of India (RBI). Another major allegation on the company is that it has done large-scale cash transactions without meeting the Know Your Customer (KYC) norms. To investigate these allegations, ED has raided and seized assets worth Rs 143 crore belonging to company’s MD V P Nandakumar in Thrissur, Kerala. After a preliminary investigation, the ED said that the company has done huge cash transactions in the name of public deposits. These transactions have been done by MD VP Nandakumar with the help of his company Manappuram Agro Farms MAGRO. These transactions are allegedly related to money laundering.

How much did the stock fell?
ED’s raid has put heavy pressure on the stock of Manappuram Finance. The company’s stock was in the range of Rs 102 to 112 on Friday in the Bombay Stock Exchange. A decline of 16% was recorded in the stock. Dr. Ravi Singh, Vice President and Research Head of Share India, says that there has been a decline of more than 20% in the last three days. Dr. Ravi Singh says that right now this share can crash up to Rs.80. If this stock breaks the level of 95 then one should exit this stock. This stock has fallen 16% in the last one month and 7% in 1 year. The stock has given more negative results than positive results. In such a situation, new investors should stay away from this stock for the time being. When the stock is affected due to any news, then one should not worry for some time but fifteen days is enough time for a possibility of correction in the prices. From April 19 till now the stock has not given any positive closing. Therefore, it is advisable that investors should reduce their loss exposure.

What should investors do?
Dr. Ravi Singh says that as far as fundamentals are concerned, Manappuram’s market cap is Rs.8700 crores. Its financials are strong and stable. It is likely to remain stable in the next quarter or two as well. But due to ED raids, its numbers may become volatile in recent times. Due to increasing interest rates, its business can also be affected. Investors are advised to buy Muthoot stock against this stock. Another 20% correction is expected in this stock in coming days. Therefore, instead of buying, investors should look for an exit. Once this stock comes to the level of 70 then one can think of investing back in Manappuram’s stock.