INSUBCONTINENT EXCLUSIVE:
When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise
Imagine yourself before a football game between two teams that have the same record of wins and losses
Now the game is over, and one team trashed the other
In your revised model of the world, the winning team is much stronger than the loser, and your view of the past as well as of the future has
been altered by that new perception
It translates into 26,000 stocks in 6 months in simple but stupid arithmetic
Based on price movements of 0.76 per cent of this total, the Securities Exchange Board of India is proposing to have circuit filters.
Why
would a regulator contemplate rule change with such a small sample of stocks that moved between 10 per cent and 40 per cent during the
day.
What has happened in the last six monthsSix stocks moved more than 40 per cent in a day; five between 30 per cent and 40 per cent; 29
between 20 per cent and 30 per cent and 40 moved more than 20 per cent, says Sebi
Stock price movements are not like appearance and disappearance of fairies and demons in the fantasy world
filters on the scrips, in the cash segment, on which derivatives are available may lead to possible mis-alignment between the price of
price bands /circuit filters are applicable on them
In view of recent abnormal intraday price movements, suggestions are being made to review the rules to prevent such extraordinary price
others witnessed such big moves.
There were adverse developments in all these companies
In the case of Zee and Reliance ADAG group, it was the break or perceived fears of breaking of loan covenants that led to lenders selling
In the case of Vedanta Ltd, the eternal fears of corporate governance resurfaced, and for DHFL it was the debate about liquidity and
solvency.
An investor, whether short term or long term, would react to developments
When news is adverse, investors may misread and sell in anxiety
But that opens up an opportunity for another to buy a stock cheap
Among the recent untouchables, stocks like Yes Bank and Zee have rebounded due to clean chit from RBI on bad loans divergence and a
likelihood of strategic stake sale by Zee founder Subhash Chandra.
If a business is strong enough, investors pile on as quickly as they exit
role is investor protection and not investment protection
no dearth of crooked traders who thrive on rumours
The regulator should sharpen its skills to catch the unscrupulous instead of meddling with market mechanics.
Many inside Sebi would remember
that the Ketan Parekh-centred tech bubble and bust at the turn of the century had its roots in circuit filters
Parekh the trader, lived by that sword only to die by that sword.
JR Varma, finance professor at IIM Ahmedabad, was instrumental in changing
Sebi view on circuit filters then
If it is good for consumers when Amazon and Flipkart have a discount sale, it is good for investors when stocks are on sale.
