Zee’S Options, Airtel Rights, Sucker Bulk Deal, Promoters’ arbitration
Famous fund manager Peter Lynch noted that more people lost money waiting for a market correction than being in the middle of it. This seems to be quite the case right now on Dalal Street. Foreigners rubbed their hands in glee as the market suddenly plunged on Wednesday, convinced that the long-awaited correction had finally arrived. But the insiders, as always, seem to have had the final say at the end of the week. The buy-down strategy is working wonderfully… so far.
Call it correctly
Nice leap of faith from buyers, considering that the title had been declining for more than three months. Sellers of these options looking for assured gains would have been crushed as the option price rose from around Rs 3 to Rs 64 overnight as soon as Invesco’s letter went public, and the stock shot up. about 40% in one session. Did buyers know something that the rest of the market didn’t know?
Traders in mid-cap stocks would gradually be offloading positions in some of the vulnerable names. With valuations becoming increasingly difficult to justify, many mid-caps will become illiquid overnight as soon as a correction occurs. So smart gamers are using the current frenzy to make a quiet outing, ironically, making noise about it. The modus operandi is as follows: put a big block of shares to sell on the screen. This will make the bulls nervous.
But soon enough, another buyer (an associate) will take over. Newbies watching the trading screen will mistake this for a sign of high demand for the stock. The next time a block is offered, like mice attracted to cheese, they nibble on it, only to realize that there is more where it comes from.
Many of these new entrants act in groups as it helps them build momentum in small stocks. They are confident that they have learned everything there is on the market. But as the old monk says: new investors will soon learn very old lessons from the market.
With money flowing in at a rapid pace, many fund managers don’t know how to deploy them, given the expensive valuations. But not investing is an even greater risk in this kind of market.
Some of the smart fund managers are using new inflows to increase their exposure to stocks that have a heavy weight in their portfolios. If the share is medium in size, the purchase increases the share price as well as the net asset value (NAV) of the plan. A higher NAV means more investors show up at the door.
Bank in Canara
Rakesh Jhunjhunwala’s purchase of Canara Bank shares last month is common knowledge as this is reflected in the bank’s latest shareholder data. But the action also seems to have caught the attention of Silent Operator and his associates, who have regularly bought it over the past month.
The mood of public sector banks, in general, has improved, with analysts expecting a significant drop in the proportion of non-performing assets for the September quarter. But beware of jumping into any title just because the big names in the market made it shine. Too many cooks can spoil the broth.
Money for jam
At expiration, positions are reversed: futures are bought and stocks are sold. It turns out that some promoters are selling shares of their benami accounts with these funds and, through their brokers, take a long position in futures contracts, equivalent to the shares sold.
On the other side of futures trading is the arbitrage fund. The promoter gets the full amount of shares sold and only needs to pay 25% for the futures position. At maturity, the promoter and the fund agree to carry over their positions to the next settlement cycle.
The fund gets its spread, the promoter gets its funds.
(Edited by : Ajay Vaishnav)