Online brokerage platform Zerodha’s Chief Executive Officer (CEO), Nithin Kamath, in a recent social media post, said that there are many recent initial public offerings (IPOs) of companies which have been gaining after listing on the stock markets.
Kamath highlighted that although the demand and supply factors are the triggers of the share price movement, there are other likely reasons which are fueling the share rise post-IPO round in the Indian stock market.
“I’ve been noticing many recent IPOs continue running up for 2-3 days after listing. While demand and supply factors (limited free float) are obvious reasons, there may also be technical factors at play,” said Kamath in his post on platform X.
What are the technical factors in play?
Zerodha CEO Nithin Kamath said that traders attempt to short these IPO stocks during the intraday session, anticipating the shares to fall, but if the stock price hits the upper circuit level, the trades get trapped with no buyers to offload their holdings.
“Many traders attempt to short these stocks intraday, expecting a fall, but if the stock hits the upper circuit, they get trapped with no buyers to sell to. This leads to what’s called a short delivery,” said Kamath.
The stock exchanges carry out an auction session the next day in case of a short delivery, where, between 2:30 p.m. and 3:00 p.m., the exchange settles the trades. However, these auctions can be at a significant premium to the market price of the company shares.
“For instance, today Meesho’s auction price was ₹258, while the market price at the time was around ₹226,” said Kamath, giving an example of the short delivery settlement trade.
To settle these trades, the exchange invites offers from fresh sellers for the shares that are short delivered. According to Zerodha data, a short delivery happens when the exchange is unable to deliver shares purchased to the demat account because the seller failed to do so.
Is this a way to exit stocks with higher gains?
Zerodha co-founder and CEO, Nithin Kamath, said that selling your holdings through the short delivery-auction session round is a “great way” to exit your positions at a potentially higher price.
He also highlighted that if investors are holding stocks in companies which are going through an auction window, they can offer their shares directly at a likely higher price than the current market price.
“By the way, if you hold these stocks in your demat, you can actually offer your shares directly during this auction window. It’s a great way to exit at a potentially higher price while also helping the exchange settle the trade,” said Kamath in his post, highlighting that this feature is enabled on the brokerage’s trading platform.
Read all stories by Anubhav Mukherjee
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
Key Takeaways
- Recent IPOs in the Indian market are experiencing price surges post-listing due to technical factors beyond simple supply and demand.
- Short delivery situations can lead to auction sessions that allow sellers to exit at potentially higher prices.
- Traders attempting to short IPO stocks may face challenges if prices hit upper circuit limits, leading to a trapped position.
