Large brokerage houses today stopped fresh lending to punters and recalled existing loans, a day after market regulator Sebi cracked down on Mumbai-based stock market operator Sanjay Dangi and the promoters of Ackruti City, Murli Industries, Welspun Corp and Brushman.
This led to a crash of between 5 per cent (Sujana) and 27 per cent (Welspun) in several mid- and small-cap stocks. Market players said brokerages are worried about Sebi linking them to manipulators if they allowed punters higher leveraged positions.
In its order, Sebi had said it is investigating dummy companies floated by Dangi and promoters of the four companies, who had colluded to manipulate stock prices.
Among stocks that fell the most are Karuturi Global, Hanung Toys, Shiva Fertiliser, Valecha Engineering, Delta Corp, Parsvnath Developers, K S Oil, Videocon, Gokul Refoils, J Kumar Infra and Delta Corp. These are the stocks in which a few Mumbai-based operators traded the most. Stocks of GSS America, Parekh Aluminium and Syncom Healthcare, which were played by a Gujarat operator, also crashed.
While the benchmark Sensex of the Bombay Stock Exchange (BSE) slid 0.13 per cent today, the BSE Small-cap and BSE Mid-cap indices were down 3 per cent and 2.3 per cent, respectively.
||Dec 3 ‘10
Price in Rs
|GSS America Infotech
|Hanung Toys and Text
|K S Oils
|Gokul Refoils & Solvent
|* Over Previous Close Compiled by BS Research Bureau
According to market sources, some operators go by the names of ‘Barter’ or ‘Rangeela’, ‘VR’, ‘Dadhi’, ‘Babu’ and ‘Bobada’ (as he stammers). Even Big Bull Ketan Parekh’s name has surfaced as someone playing the markets. But neither Sebi nor any other regulatory agency has been able to ascertain the exact details of his operations, which is why the Supreme Court asked the Central Bureau of Investigation to release his passport a couple of months ago.
Brokers and even some corporates provide loans and huge leverage limits to high net-worth individuals, promoters of top companies and operators. Non-banking finance companies (NBFCs) – most of whom are subsidiaries of their broking units – have made a killing by lending money to punters for the purchase of shares at interest rates of 18-25 per cent.
The leverage limit, often as high as 80-90 per cent, is based on shares kept as margin. So, during crises, the fall in share price is sharp as both punters and lenders go on a selling spree. This is what happened on many counters today.
Conservative estimates put the size of stock market margin funding in India at around Rs 5,000 crore.