Operators pull down IPCL futures

Barely two days after the disinvestment minister Arun Shourie warned that the persons who had mauled prices of the disinvestment stocks will not be spared, arbitrageurs hammered down IPCL futures yesterday - the closing date of the company's public issue.

The bear hammering at the IPCL futures counter created a unique development: the closing price of the stock was lower in the futures segment than that the spot market, while the trend was reverse in all other front-running counters.

Hectic activities of arbitrageurs, who simultaneously shorted the IPCL futures and put bids through the public issue, dragged the closing price of the share at Rs 185.65 in the futures segment of the National Stock Exchange. About 1,778 contracts were traded today. The underlying share price is Rs 188.

Market grapevine had it that financial institutions participated in arbitrage, which was based on the assumption that the operator will be able to get shares through public bidding.

In case the bid got rejected "" the situation might arise if the operator's bid price fell short of the final price "" the investor would have to purchase shares from the cash market.

In that case, the compulsion of the arbitrageurs would push the IPCL price in the beginning of the next week.

For example, an arbitrage operator could have sold two lots of IPCL shares "" a lot consists of 2,200 shares "" in futures market and submitted bid for 22,000 shares at Rs 175 a piece.

The floor price of the issue was Rs 170. He has assumed that the IPCL issue would at most be oversubscribed by 5 times and therefore he would at least get 4,400 shares.

Now, he would like to sell futures at a higher rate than his proposed acquisition cost of Rs 175 to book a profit.

Today's closing price of futures at Rs 185.65 exactly matched his requirement "" after all, he submitted bids for Rs 175 a share. The selling pressure in the futures was responsible for pushing the stock down to Rs 2.25 lower than the spot market.

A Lyons Range operator said, going by the market rate of financing, he was expected to reap as high as 30 per cent return on investment in a span of only three weeks, provided he would get the allotment.

Said an operator, "The timing of the issue lured the arbitrageurs. The issue, which closed today, promised to allot shares by two weeks. Even if you add a couple of days more, you will be able to get allotment by 17-18 days from today. The March contract expires on March 25 which gives you a cushion of 7-8 days."