Bears with inside info hammer NHPC shares 32% in 3 sessions

Shares of state-owned NHPC crashed 24 percent on Friday on suspected bear hammering, as the sell-off in second line shares is spreading beyond companies where promoters have pledged their shares.

Brokers say bear operators are specifically targeting stocks where their rivals have sizeable long positions (in some cases created on margin funding) and are facing a liquidity crunch.

In the case of NHPC, talk in the market is that a big trader was holding sizeable positions through a combination of margin funding, loan against shares and stock futures. This trader had been told by one of his many brokers that he would have to shift a chunk of his positions elsewhere, as the broker was unable to finance it. The trader had been in the market for the last couple of days, scouting for financiers to fund the position. He is said to have sought the help of a former BSE President who is renowned for his bearish calls on the market.

And while this bear operator declined to fund the position, he is learnt to teamed up with another old hand in the market, also renowned for his bearish calls. The duo is said to have short sold NHPC futures heavily last week. Open interest in NHPC stock futures shot up from under two crore shares (the equivalent of) to over 20 crore shares in a week. On Friday, NHPC March futures were trading at a 5 paise discount to the spot price, indicating massive short selling.

Open interest in NHPC futures declined around 40 percent to 14.55 crore shares on Monday, indicating that bears may have used the steep decline in price to cover up a good part of their short positions.

The crash in NHPC’s stock price comes at an inopportune time for the state-owned utility major as the government has to lower its stake from the current 86.36 percent to 75 percent by June. The company came out with a public issue in September 2009 at Rs 36 a share, but has traded above that price for just a few days in the last four years