The surveillance mechanisms in both exchanges and with SEBI failed to catch the massive price fluctuation; the phenomenal gap in high prices on the BSE and NSE in a heavily-traded scrip shows how imperfect the Indian market is

Today morning witnessed an unusual listing on the country's leading bourses, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Emami Infrastructure Ltd, the demerged realty arm of FMCG major Emami Ltd, started trading on the national bourses today, and managed to raise quite a stink on its debut.

The shares of Emami Infra opened as high as Rs598.80 on the NSE, only to come crashing down to Rs86 at the hour mark, translating into an astounding drop of 86%. Meanwhile, on the BSE, Emami Infra opened at Rs250, hitting a high of Rs293 (a good Rs306 below the NSE high) and then slipping to a low of Rs86. This humungous difference in the high prices of the two national bourses, (in a stock that was heavily traded) sustained for over an hour before converging to one point.

In the meantime, traders in the system would have had a field day playing arbitrage between the two exchanges. The fact that this gap did not close immediately is an indication of the shallow nature of our capital markets. Even at the end of market trading hours, the closing price of Emami Infra on the two exchanges is still showing an unusual gap. It closed at Rs101.70 on the BSE, while on the NSE, the closing price is substantially higher at Rs104.80. A massive gap of 4% in a scrip that traded 305.6 lakh shares between the NSE and BSE is unheard of.

It is also utterly bewildering to see the huge drop in the value of the shares on both the exchanges, more so on the NSE. The share price witnessed wild gyrations throughout the day, definitely pointing to manipulation. Some entities would have possibly put artificial bids in the system. The capital market regulator and the exchanges, it seems, remained oblivious to the happenings around this stock. How is it possible that such massive distortions completely escaped the Integrated Market Surveillance System (IMSS) on both the exchanges? Would it not have been possible for the exchanges to maintain vigilance on the stock's listing day, isolating traders who put in artificial bids?

Moneylife spoke to Deena Mehta, managing director at Asit C Mehta Investment Intermediates, who told us that the surveillance system and circuit filters did not play a role as they are not operational on the day of listing of a stock. "We are open to that risk on the first day of listing. It is a risk which cannot be managed. Because everyone expects volatility on the first day, there are no circuit filters on this day."

While it is possible for the exchange to suspend trading in the stock in such situations, it is not an option that can be easily exercised, explains Ms Mehta. "If somebody points out that there is something fishy, then subsequently investigations will happen; surveillance and impounding may occur. However, you can't expect instant action. You cannot halt a running market. The sanctity of the market has to be preserved at all times."

Moneylife has written to the Securities and Exchange Board of India (SEBI) as well as the BSE and NSE to explain their position on this issue. However, at the time of writing this story, we are still awaiting a response from them.

When we contacted the company for their view on the matter, we were bluntly told by Mohan Goenka, director of Emami Group of Companies, "I have no clue why the share prices had such a big gap in the listing prices in both the exchanges (NSE and BSE). We know how to run our business; you need to ask the exchanges about the price volatility." 

 — Moneylife Digital Team