Cap investments at 10-15 per cent for investors and seek upfront payment.
Brokerages have turned extra-cautious on certain counters. Trading volumes in nearly 150 small and mid-cap counters on the Bombay Stock Exchange and the National Stock Exchange combined fell 50-98 per cent from January to April this year, as leveraged positions were not allowed by brokers.
Market sources say clients were not allowed, in the past fortnight, to buy more than 10-15 per cent of the total volume of shares. In some cases, brokers are also putting restriction on bulk and block deals, if they exceed 10 per cent of the day’s volume in the counter.
Certain counters like Midvalley Entertainment, Va Tech Wabag, Shree Ashtavinayak Cine Vision, Ispat Industries, Shree Renuka Sugar, C Mahendra Exports, Punjab & Sindh Bank, India Infoline, Balrumpar Chini, Chambal Fertilisers and IFCI, which saw huge volumes in January, were completely finding themselves out of favour. These counters saw average daily trades of between two to 16.6 million shares in January.
Market players said the reluctance in these counters was mainly after the crackdown on operator Sanjay Dangi and others place in December. A number of large broking outfits have found themselves under the scanner after the Central bureau of Investigation raids on companies like Money Matter Financials and for allowing fraudsters like Citibank’s relationship manager, Shivraj Puri, to trade through these without adequate adherence to know your customer (KYC) norms.
Markets players said brokers have been warned by the exchanges and fear inquiries. In fact, for trades in such stocks, brokers are seeking upfront money from clients for the entire purchase order to just flatly refusing. Earlier, brokers accepted a cheque from the client. “The moment we allow any big trade in a particular counter, there is inquiry from the exchanges. We don’t want any risk, so we are asking for upfront money or not allowing any speculation,” said a promoter of one of the large Mumbai-based retail outfits.
He said the exchanges start digging out KYC certificates and broker-client agreements and much more in case of any problem. This causes unnecessary harassment. “We have decided to better avoid trades in many counters till the situation cools or only going ahead with the order if the client pays the entire money upfront,” added the promoter. The regulator is already investigating many brokers for circular trading for allowing punters to trade with leverage positions.
“Earlier, the huge volumes in the counters were built through punting and day trading on the back of leverage financing. However, most brokers are not allowing any large positions in these counters now, as they also fear client default and do not want to wait even for a single day for payments. If the client is ready to give upfront payment, it is only then that a broker is ready to take risk,” said Deven Choksey, managing director of Mumbai-based K R Choksey Shares and Securities.
Brokers had stopped lending money through margin financing, which allowed traders to take leverage positions in stocks, after Sebi’s crackdown on Dangi. The leverage limit, often as high as 80-90 per cent, is based on shares kept as margin. So, during crises, the fall in share price is sharp, as both punters and lenders go on a selling spree and default risks are high.
