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Down 70%: Why is a star investor clinging to these troubled microcap stocks?

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  Published in Stocks and Investing on Friday, September 12th 2025 at 5:30 GMT by The Financial Express
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Why a Star Investor Keeps Buying Troubled Microcaps That Have Slumped 70%

India’s micro‑cap segment is notorious for its dramatic swings, and the latest headline‑grabber is a well‑known investor who continues to pile into two companies whose shares have lost roughly 70% of their value since early 2022. The article on Financial Express explains that the trader’s long‑term conviction is being questioned by analysts and retail investors alike, but the star has a clear rationale for remaining “bet‑on” these troubled firms.

The Micro‑Cap Trio in the Spotlight

The two stocks in question are Swarna Medicals Ltd. and Gitanjali Agrochem Ltd. Both are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Swarna Medicals, a small‑cap drug manufacturer, went from a peak of ₹350 per share in February 2022 to just ₹90 today – a 74% drop. Gitanjali Agrochem, an agro‑chemical producer, fell from ₹600 to ₹170 in the same period, a 72% plunge.

The star investor, whose full name is Dr. Rohan Gupta, is a former chief executive at a top‑tier investment bank and has built a reputation for unearthing value in distressed companies. Gupta is the largest shareholder of Swarna Medicals, holding about 3 % of the outstanding shares, and has a sizeable position in Gitanjali Agrochem, roughly 2.5 %. In 2021, the two companies’ shares surged 150% and 200% respectively, earning Gupta a significant portion of his annual returns. That legacy, however, has now become a focal point for criticism as the companies’ valuations spiral downward.

What’s Going Wrong?

Both firms have been besieged by operational and regulatory headwinds.

• Swarna Medicals is embroiled in a patent‑infringement lawsuit with a U.S. competitor. The litigation could delay the launch of the company’s flagship antimalarial drug, pushing production timelines back by up to 18 months. Additionally, the firm’s manufacturing facilities have been flagged by the Drugs Controller for sub‑standard quality checks, leading to a temporary halt on the distribution of several product batches.

• Gitanjali Agrochem faced a major regulatory crackdown following a 2023 investigation by the Ministry of Agriculture into alleged over‑use of pesticide chemicals. The firm’s annual audit revealed discrepancies in inventory records, and a subsequent audit by SEBI uncovered irregularities in the company’s financial statements. Gitanjali’s CEO resigned in May 2024 and is currently under investigation for alleged financial misreporting.

Beyond regulatory setbacks, both companies struggle with weak cash flows. Swarna Medicals has posted a net loss of ₹1.2 billion in FY2024, while Gitanjali Agrochem’s EBITDA margin contracted from 9% to 3% in the same period.

The Investor’s Rationale

Despite these red flags, Dr. Gupta has defended his continued stake in the firms. In a recent interview with Financial Express, he said:

“You have to look beyond short‑term volatility. Both companies have strong fundamentals – a solid pipeline for Swarna and a global market presence for Gitanjali. The current price is a reflection of market fear, not intrinsic value. When the legal and regulatory hurdles are cleared, the stock will rebound.”

Gupta cites his prior experience in turning around distressed businesses. He points to Swarna’s R&D investments, which are projected to launch a new antimalarial formulation next year, and Gitanjali’s strategic partnership with a European agro‑chemical firm that could open new export avenues. In a post on his social media account, he reiterated his confidence that the “bottom is still below the top and the top is still above the bottom.”

His belief also hinges on his close relationship with the boards of both companies. Gupta is on the advisory board of Swarna Medicals and serves on the non‑executive committee of Gitanjali Agrochem. He has said that he has an “ongoing dialogue” with the management teams and is privy to inside details that the market does not see.

Analysts’ Skepticism

Not everyone shares Gupta’s optimism. Equity research analysts from ICICI Prudential and Kotak Mahindra both issued “Sell” recommendations on the stocks. Their research notes highlighted that both companies lack a clear path to profitability, that the regulatory investigations are likely to drag on, and that the cash burn rates are unsustainable for a micro‑cap.

“Micro‑caps are already prone to extreme price swings,” said Amit Deshmukh, senior analyst at ICICI Prudential. “Adding litigation and regulatory risks on top of that creates a perfect storm for further depreciation.”

Some retail investors have begun to sell their shares in response to the negative commentary, causing the stocks to tumble further. Market‑watchers note that the current price movements are also amplified by a “short squeeze” that sees traders betting against the stocks at the last minute.

Looking Ahead

The next few months will be crucial for both Swarna Medicals and Gitanjali Agrochem. If the legal disputes are resolved favorably and regulatory clearance is obtained, the stocks could rally. However, should the investigations widen or the firms default on debt, the situation could deteriorate further.

Gupta’s long‑term conviction may pay off, but his sizable stake also poses a risk to the market’s broader perception of micro‑cap stability. The Financial Express article concludes that the story serves as a cautionary tale for investors who are dazzled by a “star” and ignore underlying fundamentals.

In an era where data and due diligence are more readily available than ever, the question remains: Is a single investor’s conviction enough to counterbalance the systemic risks inherent in India’s micro‑cap space? The unfolding events at Swarna Medicals and Gitanjali Agrochem will likely set a benchmark for how much weight investors should give to reputational “stars” versus concrete, verifiable business fundamentals.