Down 27% in 3 days! This retail favourite smallcap stock is a falling knife

With back-to-back three consecutive days of lower circuits, shares of smallcap EKI Energy Ltd have lost 27 per cent of their market value, hurting 71,401 small individual investors (owning up to Rs 2 lakh worth shares) quite a bit. Out of 26.58 per cent of the total public shareholding in the company, 21.81 per cent is held with retail investors; HNIs held another 2.24 per cent stake in the carbon credit developer and supplier, data for the June quarter showed.

On Tuesday, the stock plunged 10 per cent to lock at its lower circuit limit at Rs 504.15. It fell by a similar percentage on Monday and Friday. To recall, this was the same stock that rallied 64 per cent from August 29 to September 21.

In a recent interview to Business Today TV, market veteran Shankar Sharma had said that exits in smallcaps are extremely difficult when they are falling due to a variety and range of trading restrictions imposed by stock exchanges such as ASM and GSM. In the same interview, he advised investors to prudent and risk averse and need not be blind bulls when dealing with smallcap stocks. EKI Energy comes under ASM short-term Stage 1.

"Please convert the paper wealth to real wealth from time to time on the way up. You won't be able to do that on the way down," he suggested.

The fresh round of selling, which has taking EKI's year-to-date fall to 61 per cent, has been on account of weak financial results, with the company logging consolidated loss of Rs 33.28 crore for the June quarter compared with a profit of Rs 57.83 crore in the year-ago quarter. For the March quarter as well, EKI Energy reported a loss of Rs 47.55 crore.

EKI Energy said its sales for the first quarter nosedived 85.53 per cent to Rs 63.04 crore compared with Rs 435.64 crore in the corresponding quarter last year. The company management hopes for a revival in the upcoming quarter after COP 28 (Conference of the Parties, UN). It suggested that the wider carbon credit industry was facing poor demand due to persistent inflation, rising interest rate, subdued economic growth world-wide, prolonged Russia–Ukraine war and reducing discretionary spending.

EKI Energy has deployed Rs 92 crore from its own accruals for development of community-based projects till the June quarter and that the company is widening its business repertoire by entering into manufacturing of pellets, power trading etc. through its subsidiaries. EKI noted that India is in the process of developing a regulated Cap and Trade emission trading market. This, it said, will restrict trade of ‘carbon credits certificates’ among the obligated businesses, following the practices of similar operational markets in other parts of the world.

"However, India is also developing its offset markets for voluntary participation and is in the process of established requisite registry and MVR modalities in line with international standards. This will give more credibility to the market and generate trust," EKI said in a presentation.

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