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Recent instances of sharp intra-day plunges in stocks show bear traders are targeting shares of companies with high promoter pledges or those that have risen sharply on expectations of positive news. For instance, recently, Strides Arcolab came under an attack, as the delay in the sale of its injectable-medicines unit (speculated by the market) raised doubt on whether the move would be carried out at all. Taking advantage of this opportunity, short-sellers sparked a sell-off in Strides’ shares, which doubled in recent months. Positions funded by brokers made the job easy, as the drop in share prices triggered margin calls by brokers. Brokers in the know said the bear traders earned about 15 per cent in a day.
Brokers said investors who had mopped up the stock in recent months could have orchestrated the decline to earn easy money by selling at higher levels in the morning and buying back at lower prices before close of trade.
The presence of the stock in the derivatives segment is an added advantage, as the absence of circuit filters for stocks in the futures and options segment makes a free-fall possible.
In December, trading in the Karnataka Bank stock had come under the scanner of the Securities and Exchange Board of India (Sebi), after a sharp intra-day fall in shares. A theory doing the rounds was some Mumbai-based operators, who held sizeable stakes in the stock, had triggered a sell-off in the share during the day, after selling stock futures of the bank. The shares more-than-doubled on speculation the bank was in merger talks with ICICI Bank.
“These are clearly daylight raids on Dalal Street,” said Arun Kejriwal, chief executive of investment consultancy KRIS. “The cartel of traders identifies soft targets and goes after those.”
In the case of HDIL, the bear cartel went after the stock in January, after the sale of one per cent stake by the company’s promoters raised concern on the debt-laden firm’s liquidity. Company promoters had pledged 96 per cent of their stake, leading to worry the share drop could force lenders to sell promoter holdings.
The market is abuzz with speculation that a large operator banned from trading by Sebi is the brains behind the strategy.
Operators choose relatively quiet days to execute these trades. “A noisy day, which is full of news flow, softens the effect. Such trades are most effective on days with minimum news flow,” said a trader familiar with the operations of such groups.
Brokers said the scope of spreading rumours through text messages, emails, etc, had made it easier for these operators to push their trading calls. “Nowadays, most targets are achieved intra-day. Earlier, the cartel had to wait for some more time. Text messages help create panic,” said a trader.
