Then, India’s stock market watchdog stepped in.
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On Tuesday, the Securities and Exchange Board of India (Sebi) halted trading in LS Industries Ltd (LSIL) after uncovering glaring discrepancies between its financial health and its skyrocketing stock price. The move followed a similar crackdown on Pacheli Industrial Finance Ltd (PIFL), whose shares had also defied financial logic.
The investigation underscores a shift in Sebi’s approach—one that goes beyond reacting to stock crashes. The regulator is now leaning on advanced surveillance tools and third-party financial data platforms to identify red flags before retail investors suffer losses.
Mint reached out to Sebi, PIFL, and LS Industries for comments on the regulator’s actions but has yet receive a response.
What alerted Sebi to the companies?
Sebi’s probe into LSIL was triggered by a 3 February article in NDTV Profit, which pointed out that a zero-revenue company had reached a market capitalization of ₹5,500 crore. The LSIL stock had been suspended from trading by the exchanges between 30 December 2023 and July 2024 due to penal violations and non-compliance with Sebi regulations.
Upon review, regulators found that after the suspension was lifted, the stock surged more than 1,000% in just 48 trading days, between August and September 2024, despite the company lacking significant business operations or financial strength. Over the past month, LSIL’s shares have declined by 20.98%, currently trading at ₹64.56.
For PIFL, an internal surveillance alert flagged irregularities as the company’s stock consistently hit upper circuit limits since December 2024, prompting concerns about possible price manipulation. It had been under BSE’s additional surveillance measures, a mechanism designed to monitor high-risk stocks.
What are the similarities between the two investigations?
In both cases, Sebi stepped in after an unexplained surge in stock prices despite the companies’ weak financials. Neither LS Industries nor Pacheli Industrial Finance had meaningful operating income over the past three fiscal years, yet their valuations skyrocketed.
What set these investigations apart was Sebi’s shift in approach. Rather than relying solely on internal surveillance alerts, the regulator turned to Screener.in, an external financial data platform, to verify discrepancies—marking a departure from its usual methods.
By leveraging third-party data, Sebi was able to identify a broader pattern of stocks exhibiting similar price inflation unbacked by fundamentals. “This heightened vigilance, while potentially disruptive for companies with questionable business models, is generally considered positive for investors,” said Sanjay Israni, partner at Desai & Diwanji.
He added that Sebi has historically intervened only after investors suffered losses. “Now, Sebi is acting earlier, using advanced monitoring tools to detect issues before they spiral out of control, preventing market manipulation rather than just reacting to it.”
What did the Sebi probe uncover in LSIL?
Sebi’s probe into LSIL revealed a company that, by all conventional metrics, should not have been worth ₹22,700 crore at its peak.
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The company had negligible revenue and reported no material purchases or cost of materials from FY22 to FY25, suggesting a lack of real business activity.
Cash from operations had been negative or negligible since FY16, with “debtor days” ballooning from 118 days in FY11 to an astonishing 58,416 days in FY24, indicating severe liquidity issues.
Stock price surged by 1,089% between July and September 2024, only to plummet 84% before rebounding 223% in December 2024, hinting at coordinated price manipulation.
Sebi’s probe zeroed in on Multiplier Share & Stock Advisors Ltd, Paresh Dhirajlal Shah, and Ruchira Goyal, whose trading activities appeared central to the stock’s volatility. They allegedly placed large buy orders to drive prices up before dumping shares, triggering lower circuits and sharp declines.
Mint reached out to Multiplier for comment but has yet to receive a response.
Further scrutiny uncovered an off-market share transfer in October 2022, when former director Suet Meng Chay transferred 12.12% of LSIL’s equity—valued far below market price—to Dubai-based investor Jahangir Panikkaveettil Perumbarambathu (JPP). JPP had no known history of significant securities investments, raising red flags about his connection to the promoters.
By February 2025, JPP still held shares worth ₹698 crore, despite no clear source of wealth or trading history to justify such exposure. Sebi’s probe also revealed familial ties between JPP and LSIL’s promoters, raising questions about undisclosed related-party transactions.
What did Sebi discover in PIFL?
PIFL’s financials painted a similarly grim picture.
The company’s ₹1.07 crore revenue in FY24 was derived almost entirely from bad debt recovery and interest income, not business operations.
Despite this, its stock surged over 370% between December 2024 and January 2025, inflating its price-to-earnings (P/E) ratio beyond 400,000—an astronomical level with no fundamental justification.
Management changes in 2023 led to a rapid increase in authorized share capital and a series of preferential allotments, ultimately concentrating 99.28% of the company’s equity in just six investors.
Sebi found that the loans supposedly raised through preferential allotments were recycled in a circular pattern across multiple entities, suggesting that the company never actually received these funds. This led regulators to conclude that the transactions were part of a scheme to artificially boost PIFL’s market capitalization.
What actions did Sebi take?
Sebi determined that these actions likely violated the SEBI Act and the PFUTP Regulations. Additionally, JPP’s trading patterns and substantial gains raised concerns over potential FEMA violations, money laundering, and illegal financial transfers.
As a result, Sebi has frozen trading in LSIL and PIFL shares, blocking key entities from transacting and impounding ₹1.14 crore in alleged unlawful gains from JPP’s stock sales. It also froze the companies’ bank and demat accounts, effectively preventing further stock dilution or asset transfers.
The regulator explicitly warned investors against blindly following stock market trends, likening them to “children following the proverbial pied piper of Hamelin.”
Beyond these cases, Sebi is now scrutinizing other stocks exhibiting similar price patterns. Industry experts believe the regulator’s actions could set a precedent for tighter oversight of thinly traded stocks with questionable financials.
According to Zubin Morris, partner at Little & Co., “The use of the Screener app and advanced surveillance mechanisms flagged the abnormal price surges in PIFL which were not supported by their financial fundamentals.”
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“By leveraging AI, data analytics, and tools like the Integrated Surveillance System (ISS), Sebi is now better equipped to spot pump-and-dump schemes insider trading, or financial irregularities,” Morris added.
