Sharp run-up in select PSUs raises eyebrows

Sebi Seen Probing The Trading
Pattern Of These Low-Float Cos

Nov 16, 2007
Ashish Rukhaiyar
MUMBAI

IF A stock with negligible free-float gains more than 100% in a short span, it may not necessarily be a cause for cheer. In fact such an uncalled for activity may just bring the counter under Sebi scanner. Particularly because there is every probability that since the stock is not widely held, an investor or a group of investors may or could dictate terms and push up the stock price.

Interestingly, that seems to be just the case with a group of public sector counters . A sharp upswing in recent times has led to the belief that these counters are witnessing a planned and syndicated trading activity, thereby pushing up their prices to exorbitant levels.

Stocks like Hindustan Copper, State Trading Corporation (STC), Minerals & Metal Trading Corporation (MMTC), National Mineral Development Corporation (NMDC), Maharashtra Elektrosmelt and HMT have all witnessed sharp gains in the past one month, with some gaining as much as 200%. Informed sources maintain that this has led to the Securities and Exchange Board of India (Sebi) inquiring into the trading patterns in these counters.

In some of these companies, the government holding is as high as 99.51% and yet the stock remains frozen at the upper circuit all through the trading session. While most analysts seem perplexed over the massive rise, they add that a group of investors maybe behind the rise as there has been no significant change in fundamentals in the recent past.

“Stocks like STC, NMDC and MMTC have gained ground even on days when the benchmark indices lost heavily,” said a dealer with a reputed broking house. “In the case of Hindustan Copper, the stock has gained more than 200% in the past one month. What is interesting is that retail investors hold only 0.29% of the total equity. On its part, NMDC has a retail stake of 0.1%,” he added.

Sources further add that while MMTC has been under Sebi scanner for quite some time now, other PSUs fall into the ‘eligibles category’ for the regulator’s surveillance team. “Sebi is trying hard to find a trend in the trading pattern in some of these counters, but the low free-float does not make it easy. Also, there are a number of ‘fronts’ in the market today,” said a source.

In fact, there is very less likelihood that the promoter holding will drop to more realistic levels as PSUs have been granted exemption from Clause 40A of the listing agreement. This clause stipulates that promoters cannot hold more than 75%.

Meanwhile, on Thursday, when the benchmark Sensex lost 144 points, Hindustan Copper was locked at its upper circuit of 5% at Rs 584.85. The stock has gained 207% in the past one month. Even, NMDC was frozen at the upper circuit at Rs 14,147. NMDC has gained close to 70% since October 15.

State Trading Corporation (STC) has also gained more than 200% in the past one month. On Thursday, it gained the maximum permissible limit of 5% to close at Rs 1,574.65.

According to some dealers, apart from some prominent operators who are active in STC, a leading industrial house is also believed to be providing ‘outside support’ to some operators.