A cascading fall witnessed in the mid-cap and small-cap stocks on bourses on Monday on rumours that pledged shares of some of these companies were being sold while the benchmark S&P BSE Sensex made marginal gains.
The S&P BSE mid-cap index fell by 1.20 per cent and S&P BSE small-cap index lost 1.36 per cent. However, the S&P BSE Sensex closed at 19331.69, up 14.68 points.
The capital market regulator has alerted the exchanges, and it is in the process of ascertaining the reasons, said a senior official of the Securities and Exchange Board of India (SEBI).
“The bear cartel must have resorted to a sell-off prior to the Union Budget,” said a dealer who preferred anonymity.
As per a Morgan Stanley report, the total value of pledged stocks in the country reached Rs.1.5 trillion by the end of December 2012. SEBI allows promoters to pledge their shares to get funds from banking institutions.
“Mid-caps tend to be growth-sensitive and sentiment may deteriorate further if there is no concrete policy action both by the government and the Reserve Bank of India,” said Vikram Dhawan, Director-Equentis Capitalon.
According him, there is clear and present danger for banks and institutional lenders of further delinquencies in small and mid-cap space that along with a poor job market may also result in significant stresses in their retail assets.
About a dozen mid-cap and small-cap shares crashed on Monday with a plunge of up to 62 per cent, prompting SEBI to initiate a probe into panic selling triggered by speculation that pledged shares are being sold by certain entities.
SEBI, along with the bourses which act as front-line regulators, are looking into possible links of a rogue trader who has been barred from the capital markets but could still be trading through front entities, a senior official said.
Suspecting a foul play, the authorities got into the act immediately after a massive sell-off was witnessed around noon in shares of over a dozen companies. While the problems were initially limited to about 10-12 stocks, the panic selling spread to other companies from the sectors of affected stocks, the official said.
However, some of the affected shares managed to recover the lost ground, fully or partly, in the afternoon trade.
Sources said that most of these firms have a significant amount of pledged promoter shares and there are indications about margin-calls being triggered on these counters. There is also a suspicion that deliberate attempts could have been made to pull down the shares through spread of wrong rumours among the traders about these stocks, the official said, while adding that the exact position would be known only after further investigations.
According to data available with the stock exchanges, shares of Core Projects tumbled 62 per cent and was the biggest loser on the entire BSE, while scrips of Aanjaneya Lifecare, Sudar Inds, Flexituff, ABG Shipyard, Welcorp and Gemini Comm crashed by 20 per cent each.