Parichay Investments - A Misinvestment

I came across a company recently called Parichay Investments as it has been new highs daily. So i got inquisitive as to what the business model is and what doest the company do. Well the first thing that came to my notice was the horrendous P/E of 533.46. I agree to the fact that Investment companies should not be looked on a P/E basis for valuation but on a P/B or market cap of investments. But on checking the balance sheet to my amazement, the company had no investments but all the funds raised were simply in loans and advances. The company still trades at a P/B of 6 which is very very high given the company has no fixed assets and nothing to say in terms of working capital. Now comes the most astonishing part. As of June 2010, the promoter holding was 74.94% out of a total shareholding of 12Lakh shares which would ~9Lakh shares. The promoters Omni Bagadiya has been selling shares in the open market crazily. Every day there is some disclosure on the company stating X no of shares sold. I wonder, why the promoter selling so heavily has not been taken as a negative or bad sign. To put things in perspective Omi Bagadiay had a holding of 8,10,730 shares which is ~67.56%. Now according to the latest disclosure available on BSE, he has only 57580 shares with him which means out of his 67.56% his shareholding is down only to 4.80% and this selling has been across the board with other promoters also selling a chunk of their shares, read as Anurag Agarwal and Ritu Agarwal.

How close eyed can the person buying the shares be. I would not blame the management as the person buying the shares is neglecting all the information available to him and betting on something totally virtual. When the capital gets eroded which certainly would, he would justify his stance by saying "The management were frauds and cheaters" but never will he say " I was blind", well that is how the human brain works, External Locus of Control. We tend to attribute things outside our own control as the reason for our problems.

Note: Instead of saying the investor I have used the word "Person buying the share" primarily because a person buying these shares is clearly neglecting the three requesite qualities for a purchase to classify as an investment and him as an investor, as highlighted by Mr. Graham

1. Thorough Analysis

2. Safety of principle

3. Guaranteed return

As is said, "Return of capital" is more important than "Return on Capital"