AKRUTI CITY - PRICE RIGGING OR SHORT SELLERS’ TRAP?

JIGAR TANNA,
The stock price of Akruti City, which was ruling at Rs.880 on 27th Feb 09,
at the beginning of March F&O Series, has moved to Rs.2,300 in just three
weeks. A rise of over 150%.Is this a case of price rigging by the operator
or have short sellers been trapped?
It is necessary to understand the past financial developments that have
taken place in the stock in the last three months. Promoters of the company,
in Oct 08, had availed loan of Rs. 140 crore from Barclays, by pledging
about 70 lakh shares of Akruti, with a trigger of Rs. 610. Share price fell
to Rs.606.30 on BSE and to Rs.605.25 on NSE, on 13-1-09, and hence Barclays
recalled its loan by giving a notice of 7 days to the borrowers. The
promoters at that time were already indebted to Indiabulls with 15.50 lakh
shares being pledged with them. This news came to the knowledge of a group
of bear cartel (comprising of 4 institutional investors) and suspecting that
promoters would be unable to repay this huge amount, this cartel short sold
about 11 lakh shares on 14th and 15th Jan in F&O Segment. Due to this ,
share hit its 52 week low at Rs.550 on 15-1-09. This cartel was able to
short sell maximum of 11 lakh shares as Market Wide Limit of the stock on
NSE in F&O segment is 13 lakh shares only.
This cartel rolled over its shorts from Jan to Feb series by incurring a
loss of Rs.100 per share, as Jan series was ruling at Rs.880 while Feb
series was ruling at Rs.780. Even shorts were rolled from Feb to March
series at a loss of Rs.150 per share, as Feb was ruling at Rs.1,050 and
March at Rs.900 per share. March F&O expiry is due on 26th March. April
series is ruling at Rs.1,785 against Rs.2,250 of March, with a higher
difference of Rs.465 per share. It is learnt that this cartel may not roll
over its shorts to April series. If this is indeed true, the share price
which is now ruling at Rs.2,300 can even rise to Rs.3,000 , by the time
March series expires.
On 18-3-09, 1.97 lakh shares were marked for delivery on BSE (out of 42.88
lakh shares traded) and 3.12 lakh shares on NSE (out of 61.60 lakh traded).
Insiders say that as the floating stock is about 5 lakh shares with the
public (out of total public float of 67 lakh shares) all of this is
practically cornered by the informed circles, thus increasing problems for
the bear cartel. Of this 5 lakh, 1 lakh shares are of inside circle having
traded amongst them for tax planning. Insiders also say that these 4 lakh
shares , even if were acquired at an average of Rs.2,000 per share, would
have cost Rs.80 crore, which is less than the profit made by the insiders,
as a mark to market profit ,on open interest of F&O, which is estimated at
Rs.200 crore.
If the bear cartel does not opt to roll over its position in April series,
we may see climax of this drama on 26th March, with share price peaking on
that day. If it is rolled over (which is unlikely) we may see this drama
continuing and share can move to Rs.4,000 by April expiry.
This establishes that this is not a case of price rigging but short sellers
getting trapped and are now trying to get out of the mess having created by
them. In this cartel , two local Merchant Bankers and Brokerage Houses with
2 FIIs , through P Notes, are said to be involved, who played on inside
information, which is unethical and prohibited. A huge price has been paid
by them for this breach.
It is also said that these types of cartels are active in the market and are
hammering the stock prices of Realty and Banking sectors by building up
shorts in F&O segment. If they experience the same treatment from the
promoters and informed circles of the stocks battered by them , we may see
the Akruti saga getting repeated in those stocks.
To curb this, SEBI should urgently think of making F&O series with
SECURITIES SETTLED instead of CASH SETTLED on F&O expiry.
--
Regards,
Jigar Tanna,
Arihant Capital Markets Ltd.

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