CIL triggers much high finance

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FIIs corner shares, as brokers slash commissions, riding on a flood of volumes.

Large stockbroking houses, catering to foreign institutional clients, slashed their commission by 90 per cent today. This was mainly to attract huge volumes from the public issue of Coal India Ltd, which was listed amidst frenzy. The deal between a few top foreign institutional investors (FIIs), who scrambled for shares of the country's fourth largest market-cap company, and brokers was struck prior to the listing.

On a normal trading day, brokerage for FIIs is around 30 basis points of their order size. Today, it was as low as three bps. It could not be verified if all the brokerages where top FIIs trade — Edelweiss Capital, Motilal Oswal, India Infoline, Enam Securities, Kotak Securities, J M Financial, Prime Securities — had reduced charges.

The FIIs absorbed a large chunk of selling from leveraged retail, corporate and high net worth individuals and managed to corner huge amounts of CIL shares. Buy orders worth Rs 7,500 crore from FIIs were executed in the first hour of trading itself, which resulted in the company's share price rocketing to Rs 340, said dealers at a broking firm.

The CIL counter alone generated volumes of over Rs 22,000 crore, way higher than the combined average daily cash market volumes of the Bombay Stock Exchange and the National Stock Exchange. On a normal trading day, both exchanges together do not generate more than Rs 20,000 crore worth of volume in cash equities.

Market players said institutions such as Capital International, Bank of America Merrill Lynch, Citi, Morgan Stanley, Goldman Sachs, Nomura and top hedge funds will emerge as the largest share holders of the company after the government.

“It was a sweet deal for brokers. The commission was minuscule but volumes were boggling. For FIIs, the Coal India allotment, due to over-subscriptions, was like throwing cold water on high hopes. The result was a rush for shares in the secondary market,” said a Mumbai-based broker.

While the CIL issue was of 630 million shares, FIIs could bid for only around 300 million shares, as the rest was reserved for other categories. The institutional category was subscribed by 25 times, leaving a measly stake for every FII. Of 560 million shares traded today, investors took delivery of 240 million or 36 percent of the total traded volume, indicating long positions, mainly from FIIs.

“The deals were structured in such a way that it turned into a win-win situation for everybody. FIIs were overzealous as the stock will soon enter benchmark indices and was India’s premium company. Bankers made money by arranging for financing, and retail and high net worth individuals, too, went home laughing. Also, the success of the issue will ensure the government's divestment programme goes on with ease,” said a banker to the issue.

The frenzy was such that brokers had at least two dedicated dealers for each of their large FII client. The dealers made purchases through bulk deals and sold these in smaller quantities to several foreign sub-accounts. Prior plans of brokers included asking retail investors to bid on their behalf. Some large broking houses had each hired over 200 demat accounts of retail clients.

The FIIs were financing such brokers through the refund money they had received from Coal India. The issue attracted bids worth Rs 1.20 lakh crore from FIIs, more than the record Rs 1.08 lakh crore (about $24 billion) they have invested in Indian stocks so far this year.