 "5 reasons why Financial Tech and MCX shares slumped today")
Market regulator Securities Exchange Board of India (Sebi) has initiated a probe into the fall seen today in MCX and its promoter FTIL and has sought information from stock exchanges in this regard.
Here are 5 reasons why the shares slumped:
1) According to Deena Mehta, MD- Asit C Mehta, the spot exchange, in which Financial Technologies is a promoter and a major shareholder, was earlier doing 34-day financing for agri-related commodities. This was cut to 11-days. Moreover, in the last few days there have been notices and circulars issued by the spot exchange saying such contracts are not legal. Hence, investors have stayed away from financing the exposures. Unlike share markets where liquidation of stocks is instantaneous, it is not so in agri commodities. Time needs to be provided to liquidate and get the payments in physical markets.
2) Most of Financial Technologies’ profits came from NSEL since most of the contracts were routed through MCX. With the latest development, this will be impacted and will in turn impact the financial performance of the companies. Analysts don’t think the order/decision will be reversed and the stock has not found a base yet. In 2012 – 13, of the consolidated net profit of Financial Technologies, around Rs 127 crore, or 56%, came through NSEL. Hence, the stock has seen a sharp reaction in trade today, said Ashish Chopra, an analyst with Motilal Oswal Research
3) As regards MCX, a July 30 report by Nimit Shah and Jeetendra Khatri of ICICI Securities says that the Commodity Transaction Tax, which has been implemented on July 1, 2013, has brought the Average Daily Trading Value (ADTV) down by 33% – from Rs 41,200 crore in Q1FY14 to Rs 27,700 crore for July to date. This is higher than analysts expectation of a 15% y-o-y decline in ADTV in FY14E.
4) FTIL has blamed malicious rumours for the negative sentiments around the stock. FTIL had said in a statement last month. "The series of rumours that are spread in the market have a pattern more particularly to spread on Friday and such rumours are spread by some unscrupulous elements with a design to depress the price of FTIL and damage its reputation”. FTIL added,”We request all the shareholders/investors to be careful about some unscrupulous players in the market and bear cartels are working against the interest of the Company,"
5) The counter has seen built up of shorts position and added more open interest (OI) in last two days by more than 100%, which indicates aggressive shorts in the stock. It added open interest by 95% this morning with fall of more than 50%. The way stock has fallen and longs have been trapped, it is quite tough to see any immediate sustainable bounce back