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Midcap Shares Slump On Talk Of Sale Of Pledged Shares

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Mid- and small-sized stocks slumped on Monday, 25 February 2013, with Welspun Corp falling as much as 28 per cent and Core Education losing as much as 64.5 per cent, on speculation that the pledged shares of these companies were being sold off, dealers said.

Stock exchanges and market regulator Sebi immediately began looking into the matter to probe any possible foul play after a huge sell-off was witnessed in shares of more than a dozen companies towards noon, a senior official said.

While the problems were initially limited to about 10-12 stocks initially, the panic selling was seen spreading to other companies from the sectors of affected stocks, he added.
Controlling stakeholders of Indian companies often receive loans from financial institutions, pledging their shares as collateral, making these stocks vulnerable to any rumours of liquidations.

The total value of pledged stocks in India reached Rs 1.5 trillion as of the end of December, according to a Morgan Stanley report last week, marking a 5 per cent increase from the July-September quarter.

"It looks like a bear attack on stocks which are highly pledged," said Kishor Ostwal, Chairman at CNI Research, a research and advisory firm in Mumbai.

Welded steel pipe maker Welspun Corp Ltd was down 20 per cent as of 2:28 p.m., compared with a 0.3 per cent gain in the Nifty.

Shipbuilder ABG Shipyard Ltd and Aanjaneya Lifecare Ltd fell by their daily limit of 20 per cent, while Core Education & Technologies Ltd was down 61 per cent.

Officials at Aanjaneya Life and Core Education were not immediately available for comment. Welspun was not immediately reachable. ABG Shipyard said it would issue a statement later in the day.

ABG Shipyard chief financial officer and executive director Dhananjay Datar told ET Now TV station the company did not know the reason for the steep falls in its share prices, while saying he was not aware of any selling in pledged shares by controlling stakeholders.

India's midcap shares have been under pressure this year, due to concerns about their earnings as well as persistent speculation of funding issues that are leading to the sell-off of pledged shares.

Shares of Housing Development & Infrastructure Ltd fell 31.2 per cent in January on continued market speculation over its debt repayments.

However, some of the affected shares managed to recover the lost ground, fully or partly, in the afternoon trade.

Sources said that most of these firms have a significant amount of pledged promoter shares and there are indications about margin-calls being triggered on these counters.

There is also a suspicion that deliberate attempts could have been made to pull down the shares through spread of wrong rumours among the traders about these stocks, the official said, while adding that the exact position would be known only after further investigations.

According to data available with the stock exchanges, shares of Core Projects tumbled 62 per cent and was the biggest loser on the entire BSE, while scrips of Aanjaneya Lifecare, Sudar Inds, Flexituff, ABG Shipyard, Welcorp and Gemini Comm crashed by 20 per cent each.

BSE Mid Cap index declined 1.20 per cent to close at 6,529.53 points while BSE Small Cap shed 1.36 per cent to end the day at 6,475.65 points. The benchmark 30-share Sensex ended flat at 19,331.69 points.