A wealth maker on Thursday, only to become a wealth destroyer on Friday!

That, in a nutshell is the way some of the recently listed initial public offerings (IPOs) - CDSL, HUDCO and AU Small Finance Bank have been behaving. If this is not errant behaviour, what it is?

So how does this happen? Especially when they had bumper subscriptions and listings at unbelievable premiums, way ahead of their fundamentals. This is nothing but pure price manipulation, causing gullible investors losses of over Rs 200 crore on Friday. Usually, we associate price manipulation with stocks those are weak on fundamentals. Strangely, the trend is now being seen even in stocks with sound fundamentals. There are three recent IPO listings, which are sadly victims of manipulation by a handful of operators, making one wonder about their prowess.

This kind of price manipulation starts from the grey market, where unofficial and illegal rates are quoted some 15 days before the issue opens for subscription.

Let’s take a look closer at AU Small Finance Bank. The grey market premium opened at Rs.78 over the likely issue price and went as high as Rs.135 per share.

On July 10, the day of listing, the premium was last quoted at Rs.115 per share. However in the pre-open session, at 10 am, the price discovered was Rs. 525 per share. This worked out to a premium of Rs.167 per share, after subtracting issue price of Rs.358 per share. This stunned the market, making small investors wonder if they had lost out on some spectacular listing gains by selling in grey market. But that is not so; if they would not have entered with only the objective of listing gains, they would have been trapped because of the sudden plunge in price on Friday.

IPO Size 534.22 lakh share Employee Reservation 10.00 lakh share Net IPO 524.22 lakh shares

Grey market trades are largely done by High Net Worth Individuals (HNIs), who make large applications in the HNI category of IPO. The AU Finance IPO size was of 5.34 crore shares and take a look at the break up:

QIB allocation of 50%, being 262.11 lakh shares, were divided with 60% of QIB size for Anchor Investors, being 157.27 lakh shares, while remaining 40% for other than Anchor QIB investors being 104.84 lakh shares.

Issue Price Rs. 358 No. of times HNI category subscribed 144 To get 1 share- HNI has to pay Rs.358*144 Rs. 51,552 Finance availed being 98% at an interest of 7% pa Rs. 50,520 Margin Money/HNI contribution Rs. 1,032 Interest on Rs.50,520 at 7% pa for 6 days Rs. 59 Grey market average premium Rs. 90

Non Institutional category was at 15%, being 78.63 lakh share, while retail category was at 35%, being 183.48 lakh share. HNIs make applications in Non Institutional category, availing margin funding, resulting in an interest cost of Rs.60 per share. This is a how it works:

Gain to HN1 Applicant on Rs.1,032 in about 10 days. Rs.31

The so called operator mops up the share in grey market , In case of AU Finance, effective cost per share to him was at around Rs.448 (Issue price of Rs.358 + Grey market premium of Rs.90).

Grey market brokers are typically active in Mumbai, Jaipur, Kolkata, Ahmedabad, Rajkot, Vadodara, Jamnagar, Rajkot and Indore.

After mopping up the shares in the grey market, on listing day, the said operator buys the big quantity from the open market as well, and virtually buys entire allotment of HNI category and part of retail category as many of them apply for listing gains only.

All grey market trades are compulsorily executed on listing day on NSE or BSE, with difference in rates being settled in cash. Generally, these trades are executed on NSE, but in case of AU Finance, major trades were executed on BSE as there was trading disruption on the NSE on the listing day.

VWAP(Rs) Date BSE Delivery(lakh) NSE Delivery(lakh) 536 10.07.17 194.88 26.62 563 11.07.17 5.04 28.49 609 12.07.17 4.64 31.14 671 13.07.17 3.08 27.79 642 14.07.17 6.00 43.59

Delivery volume of AU Finance for last week on both the exchanges was as under:-

Shares allotted to Anchor Investors was 1.57 crore shares, which have lock in of 1 month from the date of allotment. Out of the balance 3.77 crore shares, 1.05 crore more shares are held by QIB and remaining 2.72 crore shares are held by retail, HNIs and employees.

These operators are learnt to have mopped up over 1 crore shares, in last one week where the average cost to them worked out at around Rs.475 per share. On Friday (July 14), there was delivery volume of about 50 lakh shares, of which, the operator sold about 40 lakh shares, at an average price of Rs 675 per share, making a cool gain of Rs.100 crore. The game is not yet over, as the operator is still seen holding about 50 lakh shares; at an average cost of Rs. 475 per share.

This is exactly how the IPOs of CDSL and HUDCO were also manipulated in grey market, as also, shares were mopped up in last 7 to 10 days and major portion of that was sold on last Friday. So, who buys the shares being sold by the operator? Of course the gullible investor, as they are lured by the prevailing rising price, as he feels he had lost out and now wants to sink his teeth into this juicy pie. The process is aided by so called “technical experts” who led these gullible investors like lambs to slaughter by putting out buy calls on these stocks.

On the face of it, there is neither anything illegal nor has there been any violation or harm in buying or selling large chunk of shares of any company. But if you look closer and unravel this messy knot, it is as clear that the very origin of this entire manipulation, the grey market and pattern in which these trades were executed, has definitely trapped gullible investors who have incurred a loss of about Rs.200 crore. Apart from the loss of money, what is extremely worrisome is that this will lead to a loss of confidence in the market, which after years has just about returned. This entire process of price manipulation makes the stock market look like a casino. The big market players who are only involved in this operation, are foolishly killing the goose that lays the golden egg.

I sincerely hope that SEBI will look into this manipulation, in the larger interests of the capital market and economy, which otherwise will drive away the retail investors. It is after a long time that retail investors have reposed their faith back into the markets and if at this juncture, corrective action is not taken, the Indian economy, moving in the fast lane could very well hit major speed breakers!