Power Finance Corporation offer: Smart traders leave retail investors high & dry

MUMBAI: Smart traders made a quick buck in the offer for sale (OFS) of Power Finance Corporation (PFC) by taking advantage of the 5% discount offered to retail investors. On July 27, the day of the OFS, PFC traded at Rs 252-257 in the cash market, and the cut-off price announced for investors in the OFS was Rs 254.3.

Traders went short on the stock in the futures market at a price of Rs 254-55. To cover these shorts, they bid at a higher cut-off price in the OFS issue in the retail category, through different family accounts, as investors can invest a maximum of up to Rs 2 lakh only.

Since the final allotment happened on a price parity basis, which means the highest bidders got the allotment, the final price of allotment turned out to be Rs 261.9. Applying a 5% discount to retail bidders, the final allotment price for retail investors was Rs 248.80. Thus, traders who short-sold earlier at Rs 254-55 made a neat profit of Rs 5-6 per share, while retail investors got zero allotment.

“Most retail investors suffered as they bid at the cut-off price, which was close to the cash market price and got zero allotment,” says Sudarshan Roongta, a Mumbai-based stock broker.