Mining away the gains

These are bad times for new listings, as any market analyst worth his name will tell you; and it’s even worse for companies from those sectors that are decidedly in a downturn. Yet, Resurgere Mines and Minerals and Austral Coke & Projects, which operate in the out -of-favour commodities space, recently had a spectacular debut on the stock markets. On the day of listing, the stock prices of Resurgere and Austral Coke rose over 100 per cent and 50 per cent, respectively.

Many investors couldn’t help but curse themselves; they could have easily got the share of these companies in their initial public offers (IPOs) as these issues were barely subscribed. After gaining further over the next couple of days, the Resurgere stock slid back almost 70 per cent and was quoting below the issue price of Rs 270 per share.

Austral Coke was in better position, losing just 18 per cent from its all-time high of 308; at the time of writing it was still trading above the issue price of Rs 196 per share. So, what explains the stunning “success” of these two IPOs at a time when the overall market sentiment was low and the commodities space an absolute no-no? Resurgere Mines is into mining of iron ore and bauxite and Austral Coke is into manufacturing coke and refractories, and both feed sectors like steel, cement, aluminium that are in a downturn.

According to market sources, the spectacular rise and fall in the stock prices of these companies was due to the fact that just a few players held most of the shares and they could move the stock price at will. This happened as the retail portion of both issues was undersubscribed, and as a result, institutional and high net-worth investors were allotted most of the shares. “When the shares of a company are in a few hands, it is very easy to control the stock price,” says a dealer with a domestic broking firm. Dealers say the share price of Resurgere was pushed higher—it went as high as Rs 740 at one point—to make a killing. When some people started selling the shares, the price was further pushed up again, luring them to cover their short positions, which led to a further rise. After the short covering was over, selling started again but this time there were no buyers and as a result the stock price fell sharply.

If market whispers are to be believed, both the Bombay Stock Exchange and National Stock Exchange have sought details from brokers on buyers and sellers in the shares of these two companies. Till the time the stock exchanges are able to prove there was something fishy about the whole affair, we can ponder over the strange ways of the market.

—Virendra verma