Insider trading in Bajaj Corp scrip?
Nitin A Khandkar 22 July 2013

After the market closed on 18th July, Bajaj Corp announced an offer for sale at Rs200. Strangely, during the day, the stock had already fallen from Rs264 by as much 10% on huge volumes. Will SEBI continue to sleep? Or will its officers find out the details and “settle”?

 

Bajaj Corp made an Offer for Sale (OFS) announcement on 18 July 2013, which came after market closed that day. Strangely, ahead of the OFS announcement, the trading that day was dominated by an unusually large volume and a decline in the stock by as much as 10%. Did someone close to the management know of the announcement and act on it?
 

It is interesting to note that unusually high trading volumes in the Bajaj Corp scrip that day. The scrip does not trade much. During the period 20th June to 17 July 2013, the average daily trading volumes in the scrip on the NSE were 31,500 shares, with deliverable volumes being 67% of total volumes. Also, the price did not show much volatility during this period—the high and low prices being Rs257 and Rs245, the spread being just 5%.
 

On 17th July, a day before the OFS announcement, the scrip closed at Rs253.75. However, on 18th July, after hitting an intra-day high of Rs264, the stock crashed by 10% intra-day to touch Rs237, before closing at Rs245. On that day, the trading volumes rose to 272,000 shares on the NSE (a 750% jump over the average trading volume), with deliverable volumes being 64% of total volumes.
 

There was no significant news in the media or announcement by the company, to warrant such unusually high trading volumes or volatility in the price, on 18th July. In fact, most other FMCG stocks rallied on 18th July, a day when Sensex was up by 180 points. Bajaj Corp was the only consumer products stock which crashed 10% intra-day. Somebody knew something? Around 6 pm on the same day, a couple of announcements appeared on the BSE website, a summary of which is as follows:

  1. SKB Roop Commercial LLP, a constituent of the promoter group of Bajaj Corp Ltd, has submitted to BSE a Notice of Offer for Sale of approx. 1.44 crore equity shares of Re1 each, representing 9.75% of the equity share capital of the Company. The Sale shall commence on July 19, 2013 at 9:15 a.m. and will close on the same date at 3:30 p.m. 
     
  2. SKB Roop Commercial LLP, a constituent of the promoter group of Bajaj Corp Ltd has now informed BSE that the “Floor Price” for the Sale Shares shall be Rs200 per equity share of Bajaj Corp Ltd. 

The OFS was subscribed 2.44 times.
 

The question is: was there “informed selling” in the stock on 18th July? It appears so, since the announcement of OFS (including the price of Rs200 per share) was not in the public domain on 18th July during the market hours, and came in much after market close. 

Who were the persons/entities who sold the stock on 18th July? Genuine investors, who bought the stock during its crash, would obviously have felt short-changed. Had they known about the OFS lined up, they too would not have bought it from the market on 18th July and would have waited till 19th July, to buy it in the OFS.
 

Informed entities seem to have dumped the stock since they knew the OFS plans (ahead of the public announcement), and the floor price, which worked out to almost 18% lower than closing market price on 18th July. Therefore, technically the stock was being shorted, since anybody who sold the stock at a higher price would have the opportunity of buying it back in the OFS at lower price. Apparently, they were not wrong, as the indicative price for the OFS has been computed at Rs225.98, on the close of the OFS, as per the NSE website. Obviously, informed circles made a killing of around 10% in just a couple of days. Will the Securities and Exchange Board of India (SEBI), as usual, ignore the compelling evidence or will it act and then “settle”?

Comments
Mehul
9 years ago
Wake up SEBI and start acting in the interest of the investors, not the operators. Not taking any action is as good as supporting the culprits
Ganesh Johnson
9 years ago
Actually, the author and Kush Katakia seem to have gotten into a war of words ... and there seems to be some misunderstanding between them!

To bring clarity:

Kush Katakia says: There was no short sell. But he does not deny "insider". So what he says is the selling must have been delivery-based, but was certainly possible it was "insider" trading.

Author thinks: Kush Katakia is denying any wrongdoing at all. Author misunderstands Katakia.

Looks like both are in agreement over wrong-doing, but are battling due to misunderstanding!
Ganesh Johnson
9 years ago
Actually, the author and Kush Katakia seem to have gotten into a war of words ... and there seems to be some misunderstanding between them!

To bring clarity:

Kush Katakia says: There was no short sell. But he does not deny "insider". So what he says is the selling must have been delivery-based, but was certainly possible it was "insider" trading.

Author thinks: Kush Katakia is denying any wrongdoing at all. Author misunderstands Katakia.

Looks like both are in agreement over wrong-doing, but are battling due to misunderstanding!
Nitin
Replied to Ganesh Johnson comment 9 years ago
There is no war of words or battle, my friend. I am a professional analyst and have no time for rhetoric or gimmicks.

I simply pointed out the anomalies in what he wrote in response to my article. Everyone, including I, is entitled to put forth their views. He did it and so did I. End of story.
arun adalja
9 years ago
no doubt our regulators are sleeping when the damage is going on and wakes when everything is over.ofs is meant for goverment to achieve their disinvestment target so they can sell at any price and retail investors are loosing money.
nagesh kini
9 years ago
To see the Bajajs indulging in such sharp practices?
Rakesh
Replied to nagesh kini comment 9 years ago
This is a different Bajaj, not Rahul
Mehul
Replied to nagesh kini comment 9 years ago
Just a clarification, bajaj management might not be directly involved... there are various other sources / means through which information leaks might happen. That is what needs to be investgated
nagesh kini
9 years ago
To see the Bajajs indulging in such sharp practices?
Santhana Krishnan
9 years ago
Market regulator SEBI wants more retail participation! (SIC)In addition to the FIIs and P Notes and faceless Foreign investors, we have unscrupulous market operators who rig the market at will and thump their nose at SEBI. Poor retail investor is left holding the can. When the investor do not have faith in the regulator, how he can have faith in the rigged market under their watch. Even Employees Provident Fund Organization opted to have NO Equity.
Kush Katakia
9 years ago
Btw, the V Wap of Bajaj Corp on 19th july was around Rs.245, which is very close to the V Wap of 18 th july. And i wonder how can one short sell a non derivative stock. (ALBM Volumes are abysmally low for such stocks, so could not have borrowed either).. With due respect Mr.KHANDKAR, i am afrais your conclusion seems to be a hurried one without much efforts being put in to research.
Nitin
Replied to Kush Katakia comment 9 years ago
Well if you had put some of your own efforts into reading the article and data carefully, maybe you would not have come up with these comments. I do not need to tell you that even non-derivative stocks can be shorted.
Kush Katakia
Replied to Nitin comment 9 years ago
Sir, that is exactly what i have mentioned.. ALBM (Automated lending and borrowing mechanism) volumes are extremely low. Unlikely that some one could have borrowed Bajaj Corp and shorted it.
Kush Katakia
9 years ago
I personally feel it is extremely naive to suggest that rise in volumes is an indicator of Insider trading.. Leaks from Merchant bankers are so commonplace nowadays..(In this case Citigroup Global) The leak could have come from various sources though..
Nitin
Replied to Kush Katakia comment 9 years ago
Why are you keen on contradicting yourself? Your first line states there may have been no insider trading. Your last line says leaks could have taken place. What exactly are you trying to say?
Pantulu
9 years ago
Speculators only get advantage and not common people. Share prices do not depend on the performance of the company. Can somebody explain why the system should be like that? Is stock market only for some speculators? Unless the share prices are linked to the performance of the company it serves no purpose. I wish some good Economist comes out with a solution. If the same system continues common people will be taken for a ride and there is no incentive for companies to improve their performance.
Mehul
9 years ago
This is a clear case of insider trading. Such trades are very rampant in Indian markets. At least when there is clear evidence, SEBI must investigate and take strict action against the culprit. This will not only bring the guilty to the book, but will also bring confidence in small investors who have fled the equity markets because of such malpractices
Hemant
Replied to Mehul comment 9 years ago
You are right ,but who will take action against SEBI,for taking anti investors actions like PCAS etc.They act like robots,without understanding the ground realities.
Mehul
Replied to Hemant comment 9 years ago
SEBI can at least investigate such cases. When there is smoke, there is a possibility of fire. Historically SEBI has been a dormant regulator. Only when small malpractices turn into bigger scams, they react to the situation.
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