2. Know The Downside Better Than The Upside

                                                                              IPOs of high profile companies always draw a significant amount of investor interest.Like it did for DLF, and Reliance Power, the story repeated for SKS.

Interestingly, when the euphoria is high, nobody questions the downside – the risks that can lead to a sad ending for the story.

Nobody questions whether the business is really sustainable, or whether the promises that the Chairman made during IPO launch, are achievable.

Take SKS here. Akula promised the moon when he went on his road trip asking people to apply to the IPO. He portrayed SKS as the torchbearer for the upliftment of the Indian poor.

All he talked about then was high future growth and profitability. The master plan to achieve that was never shared.

Anyways, just a few months after the successful IPO, SKS was hit by a series of setbacks. There were reports of suicides of microfinance borrowers in rural Andhra Pradesh, and SKS featured prominently in them, along with other companies.

Then, there was the unceremonious sacking of CEO Suresh Gurumani that raised a number of eyebrows regarding the problems brewing inside the company.

All these problems have shown in the company’s financial performance, which has gone downhill over the past few quarters.

The company is currently deep into losses, and given the nature of problems it is facing, there seems to be no way things can turn up for the better in the future.

If you are holding onto the stock expecting to get back your capital, I’m sorry to say but things look very bleak out there.

This is what I call the real risk of investing in stock markets – a permanent loss of capital.