Manipulation cloud on small IPOs

After the massive price volatility in Shekhawati Poly-Yarn, listed in January, the counter of Omkar Speciality witnessed wild price movements within a couple of days of listing.

The share of the speciality chemical manufacturer fell 62 per cent to Rs 37 from its IPO price of Rs 98 on the Bombay Stock Exchange (BSE) on February 11, a day after it was listed. The Sensex gained 260 points that day.

According to stock brokers, there are three-four known operators who take up contracts from promoters to ensure that an IPO gets fully subscribed during poor market conditions.

"The operators are allotted shares at a 30-40 per cent discount to the issue price. When the issue is listed, these operators are big sellers, which is why the share price corrects sharply," said a broker.

For instance, if the price band for an IPO is Rs 95-100, the promoters pay market operators Rs 30-40 per share in cash before the subscription closes.

The operators later put a large subscription, which ensures the IPO sails through even if there is no demand for the shares.

Later, when the shares are listed, the operators sell a large chunk above their cost of purchase. Such manipulators are making at least Rs 5-15 crore (Rs 50-150 million) per IPO, as the quantities of shares they sell are large, even if the average margin is only 10-15 per cent per share.

Market sources say some Gujarat and Mumbai-based operators have infrastructure, which includes dummy retail and sub-accounts

with some foreign institutional investors, in place.

When asked if such manipulation could have taken place during the IPO and listing of both Shekhawati Poly-Yarn and Omkar Speciality, brokers said that was for the Securities and Exchange Board of India to trace, through trading patterns in these counters.

Shekhawati Poly-Yarn listed on the National Stock Exchange (NSE) at a 66.66 per cent premium as against the IPO price of Rs 30.

However, on BSE, the counter saw a modest opening at Rs 8.33 per cent above its issue price and rose to a high of Rs 69 the same day.

Interestingly, in just two trading sessions, the stock fell 44 per cent from its high, as operators were seen exiting the counter, and it was locked in the 20 per cent lower circuit. It today traded at Rs 25.5 on BSE.

Circular trading in Shekhawati Poly-Yarn was so high that 225 million shares were traded on BSE and NSE on the first day of listing as against the 10.2 million shares that were offered.

On BSE, over 100 different entities, mainly arbitrageurs, were involved in bulk transactions. The company had raised Rs 36 crore in the IPO.

Omkar Speciality rose 10.3 per cent to Rs 42.15 on BSE on Monday. The company had raised about Rs 79 crore (Rs 790 million) through its IPO, which was subscribed 4.67 times.

The company got bids for 37.7 million shares as against 8.1 million shares on offer. The category reserved for retail investors was subscribed nine times.

In the non-institutional segment, the offer was subscribed 5.3 times. The qualified institutional buyer segment was subscribed 0.8 times.