Stock markets gave the thumbs down to the scrip of Jain irrigation on Tuesday after the company announced its intention to raise capital through a QIP issuance for Rs 700 crore. For the company, the issue would result in equity dilution of 11.31 per cent.

The company’s plans to float an NBFC seems to have not gone down well with the street and the scrip was battered; it lost 18 per cent from its previous close, ending the trading day at Rs 156.95.

Volumes traded on Tuesday were significant at 34.55 lakh shares in the scrip, against the two week average of 1.35 lakh shares.

Experts feel that the company’s plans of diversifying into micro credit could have played spoil sport. “Too much of diversification into unrelated businesses is definitely questionable,” said Mr. Alok B Agarwal, Head- Research, Mata Securities. “Markets tend to give a knee jerk reaction and wait for a pretext to bring down stocks and this is only coincidental that a correction was also on,” he added.

Experts believe that the intention of funding farmer needs though good, could result in NPAs as the company does not have enough experience of this business. “We cannot take chances, especially after what happened to microfinance companies,” said an analyst with a multinational brokerage.

Experts were also circumspect about the company’s ability to manage the broader issues especially those related to interest rates, liquidity to fund prospective customers and the ability to juggle with asset liability mismatches while maintaining a healthy capital adequacy.

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