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Question mark over timing of JP Morgan advisory, moneycontrol report on SKS Microfinance

The stock price of the country’s only listed microfinance firm crashed 35% in two trading sessions, leading the market regulator to initiate an inquiry into possible insider trading

The SKS Microfinance stock price crashed by 20% on the bourses on Friday, after brokerage house JP Morgan slashed the target price of the country's only listed microfinance firm by more than half, to Rs200, from the earlier Rs550.

Even as speculation is rife over the hammering of the scrip, market experts are questioning the timing of the advisory released by JP Morgan, as it was released shortly before the announcement of the company's fourth-quarter results.

One market expert pointed out that only two days before the results, the financial portal moneycontrol.com published a report, titled "Bear of the day: Stock that plunged 58% in 6 months", in which it described how SKS has "lost 58.30% in the last six months."

"Two things happened before the results-the story on moneycontrol.com and the JP Morgan sell advisory. The timing looks suspicious. In my opinion it is both bear hammering and an insider trading violation," he explained.

The JP Morgan report cited challenges ahead for SKS and slashed its target price. Then on May 6, the shares price of SKS Microfinance plunged by 20% to Rs331.30, its lowest ever.

The 20% fall on Friday was coupled with a 10-fold surge in the stock's trading volumes, prompting the bourses and market regulator Securities and Exchange Board of India (SEBI) to consider a probe into the possible breach of insider trading norms, or hammering by a bear cartel.

Strangely, the SKS stock price crash coincided with a strong upward trend in the market, as the BSE Sensex rose by over 300 points, and came only a few days after the Reserve Bank of India said that bank loans to microfinance lenders would be categorised as priority sector lending.

On Friday, the company announced that net profit fell 36% to Rs111.63 crore in the quarter to 31 March 2011, compared to Rs174 crore in the corresponding previous period.

The surge in trading volumes and a heavy fall in the share price when the company announced a loss only after market hours is being seen as an unusual event by market surveillance authorities who have therefore initiated a preliminary probe.

On Monday, the SKS stock continued to fall, losing over 18% to a new low of Rs268 as analysts forecast a dull outlook for the microfinance lending sector. Volumes continued to surge. Over 27 lakh shares were traded on Monday, which was double the volume that was traded on Friday.

The company has said that it would welcome an inquiry by the regulator, to investigate the circumstances leading to the fall in the share price.

Moneylife sent e-mail messages to JP Morgan and moneycontrol, as well as SEBI, seeking their comments on the questionable timing of the advisory and the publication of the story. The messages have not been answered.

The SKS Microfinance stock price climbed steadily through the morning trade on the Bombay Stock Exchange today, and closed at Rs297, a gain of 10% over its previous close of Rs270.

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COMMENTS

S Amin

6 years ago

It is ridiculous to believe on what ground did JP Morgan and money.control issue such irresponsible comments. The stock price tumbled and investors had to suffer. May I request ML to go deep into this matter and ensure confidence is regained to the investors.

Anonymous

6 years ago

http://articles.economictimes.indiatimes...

Link to Narayan Murthy's allotment to SKS shares

Anonymous

6 years ago

http://microfinanceafrica.net/microfinan...

http://articles.economictimes.indiatimes...

The second link explains how overvalued the shares were when the IPO came out. Even the current market price doesn't seem to match the price at which employess / CEO got the shares. Other investors like Narayan Murthy (his Trust actually) were also sold the shares, at a premium though (but cheaper than the IPO price)

Anonymous

6 years ago

There was another coincidence which escaped the eye of investors. The case between the sacked CEO and SKS microfinance was settled by compensating the CEO for some shares priced at 300 Rs

K A PRASANNA

6 years ago

Manipulators are busy again in SKS Micro. There were no takers for Rs 270 on 09-05-11 and toady the stock is locked at the upper end (10%). Some thing fishy. The stock is not worth Rs 100. Like water, this stock will find its level in due course.

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