WINNING STROKES:THINK DIFFERENT:

Short Selling- Cause for bleeding markets: K R Choksey Shares and Securities Ltd:

Academics like Ms.Susan Thomas (she seems to have no practical experience in Share Market and talks like a machine) says market discovers Prices of stocks/Shares.

Yes Susan, you are right: Unitech Ltd should be valued at Rs.30, and Lok Housing Ltd(BSE Code:500256) with Value of land exceeding Rs.6000 Cr should be valued at Rs.20, Ennore Coke Ltd(BSE Code:512369) with its Coke, Power, Mining and Carbon Credit Story should be valued at Rs.15, ASM Technologies Ltd (BSE Code:526433) having a number of overseas offices, should be trading at Rs.25, etc. isn't it???!!! Wah!! Wah!! Wah!!......Do you understand the term, "Bear Hammering"??? I think World Body, should think of giving you a Noble Prize in Economics in 2009!!

Are the current actions & activities of SEBI portraying it to be a Very Slow Moving Animal??!!

Recent sharp fall in domestic market has created unwarranted situation for Indian investors and economy as a whole. Regulatory responses from Ministry of Finance, RBI and SEBI are in right direction to cool down the liquidity crunch albeit the measures are more reactive than proactive.

We were very concerned about the recent fall in the markets and we tried to find the reasons for such a fall which wiped out ~$175 bn of Market cap (Just counting the stocks which are on the F&O segment) in just 2 months.

Hence, we decided to analyze the delivery data of F&O stocks to allay our fears of any bear hammering. To our disappointment we found that the maximum damage was done by bear hammering on the stocks, without any strong delivery volumes accompanying it. This means that the F&O markets were proving to be boon for the short sellers who would short the derivatives in cash settled market and pocket the difference at the end of each session. They were able to do so as they did not have to give delivery of the stocks they short sold.

Our Analysis:

We did a quick check on the impact that short selling was having on the markets. We have seen that the Nifty has fallen by ~28% in the last 2 months. We analyzed the F&O universe to understand the impact that the short selling was having in the markets. Out of all the F&O stocks, we have taken only those stocks where the fall is more than 30% & the deliverable volume was less than 40% in the cash markets.

This exercise was intended to arrive upon the stocks which have fallen disproportional to the markets and on a very low volume. Thus, implying huge speculative positions.

Synopsis:

We analyzed all the stocks, sector wise and reached the following conclusion.

1. 14 construction industry stocks were hammered with pathetic delivery volumes with a massive change in the market cap for these stocks. The top stock in this sector, DLF and Unitech was hammered by the bears as the stock went down ~42% and 51% respectively, with a pathetically low volume of ~15%.

2. 13 IT companies were also taken to task by the short sellers as there were global crisis and the short sellers made hay with relatively low delivery volumes. These include top stocks like Satyam, TCS & Wipro.

These stocks were hammered on a paltry delivery volume of ~25% to 30%. Hence, proving our theory of bear hammering without substantial deliveries.

3. 9 Engineering/Electric Equipment companies were also in the list including heavyweights like L&T and BHEL. A stock like L&T fell ~40% with a miniscule avg. delivery volume of 23%.

4. 5 power stocks were hammered by the bears on a very low delivery volume. Stocks like Reliance Infra fell 51% with an avg delivery volume of ~13%.

5. In total there were about 91 stocks across various sectors that showed huge bear hammering on relatively low delivery volumes.

Our View:

If domestic investors are protected from one-sided game, they can indeed help India with investment it requires in the economy. Capital market must protect their investments from systematic fall in the market.

Emergency situations call for emergency measures. We think this situation of bear hammering has really gone out of hands and if these bears are not checked they could bring the whole markets down to its knees.

In our view, since the free market philosophy would never demand a ban on short selling, we can definitely go for delivery settled F&O markets which would go a long way in giving comfort to genuine long term investors. Even after seeing the compelling valuations long term investors are wary of such steep falls in prices just on the basis of speculative transactions which are unwarranted in terms of global crisis.

Why delivery settled F&O market?

• Check on short-sellers as he would not play fear psychosis recklessly since the option to ask for delivery would be available in the system. Today short-sellers enjoy free ride in the market driven by MTM credits earned everyday. It is not the win over the long trader but killing of a genuine investor in the cash/equity market who is constantly facing erosion in values.

• Checking F&O activities would mean empowering LIC & other domestic funds to buy equity, which is available at distressed valuations. Not only their actions would support the falling prices but also would return the confidence back to the investors. Local investors have not done anything wrong & need protection from the system. Local investors have never asked and would not ask for protection on price of stocks.

They demand that FIIs can’t be given the undue advantage of shorting in F&O markets & collecting difference in cash at the end of the day under MTM; at least in the situation which is most fluid globally.

Free market logic is not fully applicable here since free market would have never stopped investors for asking delivery of shares against position he has taken. It is important to add that delivery of shares from cash/equity market is always available but checks on rampant activity in F&O market which is not possible in current system.

Note: I have written earlier, in various Yahoo Groups that if the Government wants this Hoch-Poch "Satta F & O" market, to continue, then it should stop talking about the virtues of investing in the share market.

Yesterday I wrote: I do not understand why the government cannot lap up undervalued shares from the open market using a part of the Huge Forex Reserves it has. I do not understand the logic of keeping the Huge Forex Reserves Ideal (un-utilized) , like hanging a dead albatross around the neck??!!

If the government is so confident about its performance when why should it at all panic in picking up shares from the open market when, in some cases, their prices have fallen more than 80% from their all time highs.

In this way the government could have their representatives in various companies and also after 5 (five) to 6 (six) years when their prices will rise, it will be able to sell them in the open market (like Disinvestment) at a hefty premium, bringing in huge funds for the developmental activities (which India needs at present). Instead of buying dollars to support the IRN (Rupee), I do not understand why the government cannot buy shares from FIIs, when they are going for distress selling, to meet their obligations at home.

Some people like Atul Suri says, that he is looking for, "Short Covering to take Place". But if FIIs and some HNIs are exiting the markets to meet their margin obligations, how can there be massive Short Covering.....

THE FINANCE MINISTRY AND SEBI'S PERFORMANCE HAS DISAPPOINTED ME, TO THE HILT.