How a WhatsApp note cost investors Rs 9,200 crore
Shares of Infibeam Avenues fell as much as 73 per cent on Friday after a WhatsApp message doing the rounds alleged corporate governance issues in the company. This is the steepest single-day fall after Satyam Computers Services which plunged 83 per cent on January 7, 2009, after the accounting scam broke out.
Nearly Rs 9,200 crore worth of investor wealth in Infibeam, India's first listed e-commerce company, was eroded on Friday as market capitalisation of the company plunged to Rs 3,900 crore from Rs 13,105 crore on Thursday. Infibeam shares ended at Rs 58.80, down by Rs 138.75, or 70.24 per cent, over the previous day.
The WhatsApp message, which was attributed to brokerage Equirus, raised questions on the company's accounting practices.
The note said the company gave an interest-free and unsecured loan to a subsidiary with negative net assets to be repaid over eight years. The note also mentioned that the company has re-classified its co-founder, who continues to hold a large chunk of shares, as non-promoter. This triggered a sell-off in the shares, said dealers.
Equirus Capital denied it had issued the note.
In response to an ET query, the company spokesperson said, “The company has given interest-free unsecured loans to its wholly-owned subsidiary NSI Infinium Global since inception. These loans are short-term loans which are repayable on demand and have been utilised by NSI solely for its business and operations.”
“Further, there has been no change in the promoters from the list of promoters identified and disclosed by the company info in the offer documents for its IPO.”
Brokers said the initial decline in the shares sparked margin calls, forcing them to cut positions created on borrowed money. Unwinding by arbitrage mutual funds, which had bought Infibeam shares and simultaneously sold its stock futures, pushed the stock lower.
“Arbitrage funds had to unwind their positions causing significant amount of selling in a market otherwise nervous which led to all kind of speculations and a cascading impact in the stock price,” said Deven Choksey, who is managing director of KR Choksey Shares.
“Cash-settled derivatives markets work against investors. I am quite sure, in bearish markets when the buyer is weak, the seller gets heavy in the market as he knows that the buyer doesn’t have the cash to counter his position,” he added.
Arbitrage funds take advantage of the price differential between the cash and futures markets by buying stock in the cash market and simultaneously selling it in stock futures.
Arbitrage schemes together held Infibeam shares worth Rs 423 crore as on August 31, according to Value Research.
The WhatsApp message, which was attributed to brokerage Equirus, raised questions on the company's accounting practices.
The note said the company gave an interest-free and unsecured loan to a subsidiary with negative net assets to be repaid over eight years. The note also mentioned that the company has re-classified its co-founder, who continues to hold a large chunk of shares, as non-promoter. This triggered a sell-off in the shares, said dealers.
Equirus Capital denied it had issued the note.
In response to an ET query, the company spokesperson said, “The company has given interest-free unsecured loans to its wholly-owned subsidiary NSI Infinium Global since inception. These loans are short-term loans which are repayable on demand and have been utilised by NSI solely for its business and operations.”
“Further, there has been no change in the promoters from the list of promoters identified and disclosed by the company info in the offer documents for its IPO.”
Brokers said the initial decline in the shares sparked margin calls, forcing them to cut positions created on borrowed money. Unwinding by arbitrage mutual funds, which had bought Infibeam shares and simultaneously sold its stock futures, pushed the stock lower.
“Arbitrage funds had to unwind their positions causing significant amount of selling in a market otherwise nervous which led to all kind of speculations and a cascading impact in the stock price,” said Deven Choksey, who is managing director of KR Choksey Shares.
“Cash-settled derivatives markets work against investors. I am quite sure, in bearish markets when the buyer is weak, the seller gets heavy in the market as he knows that the buyer doesn’t have the cash to counter his position,” he added.
Arbitrage funds take advantage of the price differential between the cash and futures markets by buying stock in the cash market and simultaneously selling it in stock futures.
Arbitrage schemes together held Infibeam shares worth Rs 423 crore as on August 31, according to Value Research.
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