Sunday, 23 September 2018

Violent Moves


Dear Readers,

Market is abuzz with a lot of rumors right now.

There were violent movement across stocks on Friday (21st September 2018)

Many stocks including shares of NBFC companies led by DHFL (Dewan Housing) crashed 20-50% in Intraday last week on Friday (21 September 2018) some recovered some did not..

Lets look at past instances of large companies ideally part of the F&O segment crashing by more than 20-30% in a day or intraday and how they are doing as of date. (Except 2008 January crash on P-Notes news when Indices hit the lower circuit).

1- Satyam Computers: 17th December 2008 (Before the Scam) and 7th January 2009 (Scandal)

Talk about a Satyam crash and everyone starts talking about 2009, But before the eventual Satyam Scandal break-out that happened in Jan 2009.
Shares of Satyam Computers (traded in F&O) crashed more than 30% on 17th December 2008. The stock ended close to 226 on 16th December 2008 and went on to hit a low of 153 on 17th December 2008. (32% crash)  The trigger behind the crash was management decision to acquire two promoter related companies (Maytas Group) Companies promoted by Raju’s son. The company later cancelled the plan to buy the two companies.

Satyam chairman B Ramalinga Raju expressed surprised at the market reaction to this decision that was supposed to “delight” shareholders but resulted in a shock, He said the board "decided to call off these actions. . . in deference to the views expressed by many investors".

Satyam Computers: 7th January 2009 (Satyam Scandal)

After the Dec 2008 crash, Satyam in 2009 crashed again. This time the one last time.
The stock on 7th January 2009 crashed from 179 to hit a low of 30.70 (82 % crash).
Shares of Satyam which means Truth in Sanskrit saw this collapse after B Ramalinga Raju announced his resignation as the chairman of Satyam confessing manipulating the books to the tune of under 15,000 crores. The stock eventually went on to hit single digits and was later on taken over by Tech Mahindra and eventually merged with Tech Mahindra.


2 – Akruti City (Akruti) now (Hubtown) : 20th March 2009 and 26th March 2009.

Today you see Hubtown Ltd is a listed company with a market cap of 300 odd crores at a Stock Price of 50.
But the company has a rather glorious past. The share prices of Akruti rose 2300 in March 2009 from 800 at the start of the month. A rally of almost 190% in an F&O stock.
But on 20th March 2009 struck the bears, The shares of Akruti which was heavily traded in F&O collapsed from 2210 on 19th March to hit 1570 on 20th March 2009 almost 30% crash in a day. The main reason behind the crash on 20th was merely NSE announcing F&O exclusion of the stock amid growing question marks on the sharp unusual rally in the stock while other real estate stocks were biting dust.

On 26th March 2009, which was the last traded day for this stock in F&O as all forward contracts expired on this day. The stock crashed 1850 to hit a low of 700 (62% crash in a day).
The stock ended close to 1000 (still being down by close to 45%) versus a day ago.

Post removal from F&O admist SEBI enquiries on the rally and the fall and all the WHYs and HOWs among traders and investors the stock went to hit levels close to 300 (Almost 90% wealth destruction from highs) in the next couple of months and eventually faded to oblivion.

3 – Core Education & Technologies aka Core Projects : 10th October 2008 and later February 2013.

Heavily traded F&O counter, Core Projects (Core Education) plummeted from 250 on 8th October to hit 123 on 10th October 2008, A fall of more than 50%.
After lot of whys and hows the stock started trading normally, went on to recover and traded above 300 later on in next couple of years.

In September 2012, the Stock was kicked out of the F&O segment.

Later in 2013, Core Education shares tumbled more than 80% in three days. From 300+ price on 22nd February 2013, the stock hit 56 bucks on 27th February 2013.
A crash of more than 80% in a couple of days. Again a case of lot of Whys and Hows with various theories. The key reason claimed was sell of pledged shares which was repeatedly denied by the company, S&P even assigned a B+ stable rating on the company’s bonds.

The stock later became a penny stock and as of today it ceases to exist, as shareholders still wonder what went wrong.

4 – GTL Ltd: 17th June 2011 and 20th June 2011.

Telecom Infra stock GTL Ltd, another well traded counter of F&O was the victim or rather the culprit in June 2011.
On 17th June 2011, Shares of GTL Ltd crashed from 408 day ago to hit 314 (23% crash) before ending the day at 338.

What followed was your usual sweet nothings from the management, denying any material change in business, any negative, any selling etc. Etc.

However, Next day when market opened on 20th June 2011, Shares of GTL Ltd crashed from 338 to hit a low of 124 (Almost another 65%)

That is a Total 70% crash in couple of days, Investors continued to wonder what happened, again management clarified they are pious.

The company even filed a complaint to SEBI asking them to enquire what is wrong with their stocks price.

Note: Not just GTL another group entity listed by name of GTL Infra cracked 55-60% in two days.

As of today, these two loss making debt laden companies continue to serve as a horrific memory of euphoria and panic for the market participants.

5 – Infibeam Ltd: 25th September 2017, 29th December 2017 and 21st September 2018.

One of the few listed fancy E-Commerce business, Infibeam seems to often have discount sale on their share prices too.
This F&O Counter has had a great track record of aberrations.

Infibeam shares ended at 143 on 22nd September 2017, Opened at 143 on 25th September and went on to hit a day low of 87.15 (Almost 40% knocked off) before closing at 120.
Everyone wondered what happened there.

Then up next on 29th December 2017, Infibeam from 165 crashed to 98 (40% crash) before ending the day at 141.
The company clarified that it is business as usual for them, and whatever info was due to be shared was already shared with the exchange.

But now again on 21st September 2018 the stock crashed from 235 to hit low of 141 (40% crash) to later end the day at 182.


6 – PC Jeweller Ltd: 2nd February 2018, 15th February 2018 and later on.

Shares of PCJ a listed jewellery chain tanked 484 to hit low of 218 on 2nd February 2018 (down: 55%) later the stock recovered to end at 364, Next day the stock rallied back to 470.
The trigger behind this correction was a link with Vakrangee (A busted listed company that went from 500 to 30.
Apparently, Vakrangee from open market bought 20 lakh shares of PCJ. PCJ denied any link with Vakrangee and later it became business as usual.

Then on 15th February 2018 PCJ again crashed from 376 to hit a low of 302 (Almost 20%) before ending the day at 356.
This time it was because of Nirav Modi scam that broke out, The company clarified that they do not function like how Nirav Modi had functioned and remains clean.

Later in the year, repeated rumours of the CEO being arrested to ED quizzing the management and much more, Today the stock hovers at around 70 bucks. (Down 85% from where it all started).

7 – 21st September 2018- DHFL, YESBANK, INDIABULLS HOUSING, SHRIRAM TRANSPORT FINANCE, INFIBEAM ETC.

DHFL a leading housing finance company part of the F&O segment corrected heavily on 21st September 2018.
The stock which closed at 610 on Thursday, Opened at 615 on Friday, Made a low of 274.75 (55% crash) and closed the day at 337 resulting in a Day on day down tick of 44.80%.
Despite various clarification, con-calls and everything else the stock still ended the day at some of the worst seen single day crash for a large company of 20,000+ crore market cap size (now 11000 crores).

The key trigger for such an euphoric crash is still not clear: There were some murmurs about reclassification of Loan Against Property being shown as Home Loans in the books of NBFCs. While the key reason being pinpointed by everyone right now is that: DSP Mutual Fund sold the DHFL NCDs at a higher yield triggering speculation of a rating downgrade.

DSP sold NCDs — short-term debt instruments issued by company — of DHFL worth ₹300 crore at a yield of 11%. The yield was way higher than the rate at which the previous deal happened, sparking speculation that DHFL could be facing liquidity issues, which has been strongly denied by the company.

The company did quite a few concalls and televised interviews to counter allegations. Yet the stock ended the day almost 45% down.

YES BANK shares too ended the day being down by 30%, after RBI made it clear that Rana Kapoor has to resign and YES has to find a successor for him at the Bank's top soon (Jan 19) citing concerns over asset quality disclosures

INDIABULLS HOUSING FINANCE shares went wild on Friday, the stock went from 1160 to hit 765.65 (A crash of  34%) it also recovered sharply to end the day at 1062.

SRTRANSFIN like all NBFCs too went wild on Friday, the stock went from 1192 to hit low of 970 (A crash of  18%) it also recovered sharply to end the day at 1161.
Not a long ago on 4th July 2018, Shriram Transport went down from 1297 to hit a low of 1048 (19% crash) later closing at 1145.
The reason for 4th July was that Lenders of SVL Ltd, an unlisted holding company of the Shriram group, are planning to invoke the guarantees of Shriram Transport Finance Company (STFC) after a majority of the SVL's investments turned bad. SVL's subsidiaries like Shriram EPC, Orient Green Power and Haldia Coke are facing insolvency proceedings in the National Company Law Tribunal after a loan default.

INFIBEAM as pointed out above gave another huge crash on Friday (21st September 2018) and it remains a stock to watch for violence going ahead.

There have been many more stocks that have crashed over the years such as Vakrangee, Amtek Auto etc, where the movements were violent, however we left out of some due to lack of data availability and clarity.


ALL IN ALL: While some investors are of the view that these are good opportunities to bottom fish these stocks, I feel as the above data points out, 20-60% violent movements in stocks that are actually big in terms of market cap is not a normal occurrence.

There are less chances of smoke without any fire.


Hence, I would not subscribe to the "this time it is different" feeling and make it a point to avoid these counters that have given violent moves.

Such HUGE Draw-downs are not normal.



Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.


Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might or might not have the discussed stocks in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.


6 comments:

  1. Very good information. Thanks

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  2. "There are less chances of smoke without any fire."
    That pretty much sums it up

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  3. Super article....data analysis always helps

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  4. Good article ace appreciate it, it's always dangerous to catch falling knives. One needs to remember the word 'always' the above sentence.

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