Panic batters mid-& small-cap stocks

Reports of fresh bans on some stocks and NBFC's desperate sell moves hit mid-,small-cap stocks.

Reports of fresh regulatory bans on market operators,following action by the Securities and Exchanges Board of India (Sebi) against Sanjay Dangi,and rumours that some non-banking finance companies (NBFCs) have not been able to liquidate stocks against which they had given loans to high net worth individuals (HNIs),led to panic selling on Thursday with mid-cap and small-cap being battered.

Meanwhile,rumours that more operators could be banned by the regulator resulted in indiscrimate selling in counters associated with these operators. Emails of a list of 20 scrips in which Ketan Parekh,reportedly,holds huge positions were doing the rounds. The list of scrips include JSW Steel,Pipavav Shipyard,GMR Infra,Cairn India and Indiabulls Real Estate.

Last Thursday,Sebi had barred Murli Industries,Ackruti City,Welspun Gujarat Stahl Rohren and Brushman India,and their respective promoters,from trading on the bourses for allegedly indulging in unfair trading practices. Sanjay Dangi and his group firms have been barred from dealing with any kind of securities,on charges of share price manipulation.

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It is believed that money lent by NBFC arms of brokerages such as Edelweiss,Aditya Birla Money and Indiabulls Financial Services to some operators is stuck. They could,reportedly,not sell the shares held by them as collateral since the NSDL,had blocked the shares.

Said IIFL president (retail broking) Prasanth Prabhakaran said. With prices of mid caps coming off,brokerages have no option but to offload leveraged positions. Fifteen stocks in the BSE 500 and 293 stocks in the BSE B Group,hit the lower circuit on the BSE on Thursday.

Tight liquidity has seen NBFCs cut back on loans to HNIs and clients are investing on their own, said Gagan Randev,CEO,Religare Securities. Most brokerages dont wait till the safety margin of 25% is reached but start selling much before that. This is part of the normal risk management practice, said Prabhakaran. Brokerages have been lending at about 16% to HNIs and 20% to retail customers.

Industry observers believe that brokerages are compelled to work with operators such as Dangi to shore up their bottom lines. There is immense pressure on performance. These operators give huge volumes to brokerages,which is why they are willing to take unnecessary risks and compromise on quality, said a broker..