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Four stocks in every five stocks in the BSE mid-cap segment declined on Monday owing to margin calls being triggered. According to market analysts, margin calls from certain large brokerages and redemption by some small-cap global funds led to these stocks taking a hit. Analysts clarified that “small-cap” for the global funds is “mid-cap” in India. According to exchange, FII were net sellers by Rs 1,181 crore (provisional).
“The weakening of the Nifty below its support of 5,100 was one of the reasons for the decline in these stocks. This is because normally people sell-off mid- and small-cap stocks in such situations. Also, the quarterly results of the mid- and small-cap have been poor. There were talks about margin calls as well,” said Mr Alex Mathew, Head of Research, Geojit BNP Paribas Financial Services.
Margin pressure
Mr Kishor Ostwal added that many brokers in Kolkata and Delhi issued margin calls in pledged or funded stocks. “This resulted in 20 stocks hitting lower circuits. This also had a consequential impact on other stocks as mark to market triggered and to save themselves of NSE and BSE action, brokers closed F&O and cash positions of many clients,” he said.
The stock that saw the highest decline was Tulip Telecom which fell by 26 per cent on the BSE to end at Rs 88.05 a share. On the NSE, the stock plummeted 28 per cent to end the day at Rs 85 a share. The stock touched a day’s low of Rs 65.65 on the BSE and Rs 63.35 on the NSE.
Mr H.S. Bedi, Chairman and Managing Director of the company in a statement issued post-market hours said, “It has come to company’s notice that its stock price has experienced unusual volatility, along with scrips of several other listed companies in today’s trade. The company would like to state that it is business as usual and that the operations of the company are in order.
“No new developments have occurred that can have any material impact on the company’s operations and business. The company would like to request its investors to ignore any market rumours that are speculative as there is no official news announcement made by the company.”
However, market players said that in spite of the heavy decline a few “brave hearts” bought into these stocks for the opportunity presented by them. “From a long-term value perspective, a few bought into these stocks even though during the day they must have suffered huge losses,” said an analyst with a leading Indian brokerage. He added that stocks which are fundamentally strong and see heavy declines in the short-term can give 25-50 per cent in three to six months.
The rationale behind it is that there are two results waiting to be announced during this period. So, for a company with sound fundamentals, the management would want to reinstate their faith among the investors and show good performance. However, he added that only a select few stocks have decent valuations within this mid-cap segment.
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