INSUBCONTINENT EXCLUSIVE:
The crash in mid- and small-cap shares has broken down the nexus between promoters and stock market operators
Market participants said operators, who have been hand in glove with promoters to drive up market value of the companies, are dumping shares
with many cashstrapped promoters unable to buy back shares from these operators
This has precipitated the slide in many of such shares.
BSE Midcap and Smallcap indices have plunged 9 per cent each since beginning of the
year as against half a percent rise in Sensex
BSE Smallcap index hit 52-week low on Wednesday while BSE Midcap is trading 4 per cent above its yearly low.
Most of the mutual funds have
now either stopped or slowed down funding promoters against their shares through credit risk funds and as a result there is a liquidity
lending to promoters -- some of whom use the liquidity for operators to maintain prices -- there is a drop in liquidity available to
funding by mutual funds have slowed down after few recent incidents though they have not completely stopped this lucrative deal
structure.
There are several examples in the last few weeks where stocks plunged 15-20 per cent intraday with no news or corporate
In some cases there was pledge by the promoter while in some cases pledge was minimal
many of the promoters have failed to provide top-up funds to operators/brokers while they are not in a position to supply more shares as
operator-driven, informal funding route exposes the stock to manipulation
The steep decline in the stock price makes the lender or operator demand additional margin from the promoter
Katakia, CEO, Beanstalk advisory
and some of the stocks tanked up to 40 per cent in a day
The carnage in some of the stocks from Zee group or Reliance ADA Group was triggered by financial institutions selling the shares pledged by
The latter often pledge a part of their holding as collateral for raising loans.
In some cases market participants suspects that a cabal of
operators are hammering the prices of some companies with high debt or those that have pledged a large portion of the promoters
For instance, Emami stock declined nearly 13 per cent on Monday for no reason
Promoters of Emami pledges just 47 per cent of their shares.
