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Monday, Jun 09, 2003

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PSU bank stock trading on May 29 — Investor loss could be as high as Rs 40 cr

D. Sampathkumar


WHERE would one place the bubble that burst in public sector bank stocks last week? As scams go, this wouldn't rank anywhere near the kind of monies that investors lost during the securities scam of 1992 or the more recently in early 2001, that had Ketan Perekh whipping up a frenzy in select IT/Media stocks. But those who bought public sector bank stocks on May 29, 2003 only to see prices tumble on June 2, 2003 had lost some really serious money. The loss could be nearly as much as Rs 40 crore as our analysis shows although if some of them had managed to exit on May 30, when the bottom hadn't really fallen off these stocks, the loss might have been lower.

For the uninitiated, a speculative bubble had been building up for quite some time in some of the PSU bank stocks and reached a peak on May 29 when newspapers that day, quoted an official spokesperson in the Finance Ministry as saying that the Government would accept return of capital by some of these banks at par value of shares thus bought back. But equally, stocks nose-dived on June 2, when trading resumed after the Finance Secretary had earlier clarified that the Government has no intention of accepting return of capital by PSU banks at par when the market prices of these stocks were quoting well above par.

Take for instance, the trading in Punjab National Bank (PNB) stock during this period. On May 29 as many as 18.62 lakh shares were purchased and taken delivery of, at an average price of Rs 188.29 per share at the National Stock Exchange (NSE). If we assume that none of these investors did sell out on May 30 when there was as yet no indication that the Government would rule out buyback of shares at par, then the earliest they could have done so would have to be only on June 2. But by then, the share price of PNB had fallen by nearly Rs 40 and the resultant loss of investment value for the acquisition done on May 29 would work out to Rs 7.54 crore.

At the Bombay Stock Exchange (BSE), another set of investors had similarly purchased and taken delivery of 6.49 lakh shares on that day only to see the share price fall by Rs 44.10 on June 2 resulting in a similar loss of investment value of Rs 2.86 crore. Now, if we add up the loss across 12 PSU bank stocks for trading done on May 29 and the loss of investment value on June 2, the cumulative loss would add up to approximately Rs 40 crore(See Table).

Of course a more conservative approach to estimating the loss would suggest that a few of these investors at least had somehow got wind of the impending change in official policy and exited at the going price on May 30 with the balance pulling out on Monday the June 2 when the market reopened for the week and after the official clarification had already been released. But on May 30 only 17.48 lakh shares came up for delivery at the NSE. So even if all of these belonged to investors who bought PNB shares the previous day, they would have suffered a loss of Rs 0.30 crore, as the PNB shares lost nearly Rs 0.75 in value. The balance 1.14 lakh shares (18.62 - 17.48) could only have been sold at the prevailing prices in June 2 (average of Rs 147.81), which would put the loss at an additional value of Rs 0.46 crore giving a cumulative loss of Rs 0.76 crore.

But in a few cases the loss to investors has not been substantially different under the both the scenarios as the volume of shares that came up for delivery on May 30 (when prices hadn't registered a sharp drop) was a relatively smaller proportion of what was bought the previous day. A case in point is that of Andhra Bank. Here investors bought up as many as 46.29 lakh shares on May 29. But on May 30 only 14.84 lakh shares came up for delivery at the NSE. So even if all of it consisted of shares purchased on the previous day that would still leave nearly 31.5 lakh shares exposed to the sharp drop in prices on the next trading day. In the event, the difference in loss would still have worked out to Rs 1.32 crore against the worst-case scenario of Rs 1.78 crore from trading at the NSE.

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