IPOs: Preliminary probe hints at arbitrage trade

Even as the offers for sale of the government’s stake in IPCL, CMC, IBP, Dredging Corporation (DCI) and Gail have been oversubscribed, ...

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Even as the offers for sale of the government’s stake in IPCL, CMC, IBP, Dredging Corporation (DCI) and Gail have been oversubscribed, the preliminary analysis done by the Securities and Exchange Board of India (Sebi) of these stocks has revealed that majority of the transactions in these stocks were arbitrage deals.

The prices of these stocks have moved in line with the volatility witnessed at the bourses. However, whether there was any deliberate attempt to depress the market or not can only be concluded following detailed trade and order log analysis, sources said. Sebi is also looking into the derivatives positions of all the stocks, including IPCL, Gail and ONGC, the sources added.

These six stocks were most volatile during the period and as a result there was a huge difference in their intra-day prices between the two exchanges (BSE and NSE) as well as two different segments (cash and derivatives) of the same exchange. These stocks provided an excellent arbitrage opportunity and some of them grabbed it, the sources added.

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During the period beginning February 20 till Friday last, both the benchmark indices BSE Sensex and NSE’s Nifty have seen significant amount of volatility. Of this, Nifty witnessed an average intra-day volatility of 2.92 per cent as compared with 2.66 per cent witnessed in the Sensex during the period. Both the Sensex and Nifty declined during the week by 3.13 per cent and 2.82 per cent to close at 5,667.51 and 1,800.30 respectively.

During this period, the six stocks, where the offers for sale are currently on or have just concluded, were also volatile in line with the benchmark indices. The CMC stock was the most volatile on the day when the sale process began with the IPCL offer on February 20. The stock witnessed volatility of 11.32 per cent on BSE, while on NSE it witnessed volatility of 11.84 per cent. However, on Friday last it saw volatility of only 1.23 per cent on BSE, while on NSE it remained volatile to the tune of 4.37 per cent. During the period, the stock gained by 3.20 per cent from Rs 542 to Rs 560.

However, the IBP stock continued to remain volatile and shed the price. On February 20, it witnessed volatility of 2.52 per cent and 5.44 per cent on BSE and NSE respectively. It continued a week after, as on Friday last it remained volatile to the tune of 4.46 per cent and 6 per cent respectively. During the week, the price of IBP stock fell 8.50 per cent to Rs 656.55.

The volatility seen in the other four stocks — IPCL, Dredging Corp, Gail and ONGC — has been in line with the overall market volatility.