The government suspects that shares of divestment candidate Bharat Petroleum Corporation are being artificially suppressed in the run-up to the stake sale, according to a report in the Mint.

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BPCL shares have fallen 10 percent over the last year, compared to a 4 percent rise in the benchmark indices. Shares of other PSU oil marketing companies—HPCL and IOC—too have underperformed benchmark indices during the same period. However, BPCL’s underperformance is surprising considering that prospective bidders would be willing to pay a premium.

Hammering of stock prices by rivals, disgruntled elements or opportunistic traders is a common practice in stock markets globally.

In 1996, when the State Bank of India was trying to price its Global Depository Receipts (GDRs) issue during late September-early October, the stock price tanked around 10 percent from Rs 265 to Rs 237. Market chatter was that funds managed by Jardine Fleming was behind the price hammering, as Jardine’s investment banking arm in India was not given the mandate to manage the issue.

Jardine officials denied the allegations, but the Securities and Exchange Board of India (SEBI) began probing transactions during that period.

The fall in SBI’s stock price meant the GDR pricing was lower than what the bank and the market were expecting. This triggered another wave of selling pressure by traders who had loaded up on the stock in anticipation of the GDRs being priced by a juicy premium. Over the next few days, SBI shares hit a low of Rs 208. It was one of the most effective bear raid on an index heavyweight at that time.

The SEBI probe revealed that a significant portion of the selling had been done through Jardine Fleming Broking India. The regulator found quite a few instances when JFBI was unable to deliver the shares its clients had sold and those sell positions had to be auctioned. This was a clear indication of a naked short sale with a view to beat down the price. SEBI served JBFI a show-cause notice on why action should not be taken against it.

JBFI blamed the short sales to glitches in its operating system and said they would rectify it. SEBI was convinced by this argument.

“…the lapses observed by the investigation team were largely the outcome of systemic features experienced at a time when electronic trading was new to the Indian securities market,” the SEBI order said.

JBF was let off with a warning to be “diligent in future while transacting in the securities market and while dealing with investors.’

First Published:Jan 15, 2021 12:07 PM IST