FT shares recover, up 33% on short covering; MCX stays down

Moneycontrol Bureau

Shares of Financial Technologies India (FTIL) are up around 30 percent at Rs 196 with its struggling subsidiary National Spot Exchange having proposed a staggered payment schedule to settle outstanding trades. But no respite for shares of Multi Commodity Exchange, in which Financial Technologies holds 26 percent. Trading in MCX shares have been frozen at the lower end of the 10 percent intra-day circuit filter at Rs 368, as there are no buyers.

It still appears to be a long road for NSEL and FTIL as even with the proposed formula, it could be a few months before the last of the trades is settled.

Also Read: SP Tulsian negative on Financial Technologies

NSEL's claim a few days back that it had enough physical stock, and cash to ensure settlement of the outstanding trades, has now been exposed as hollow.

According to a report in the Business Standard, NSEL may not find it easy to raise funds by selling the stock held in the warehouses, and settle the trades.

The biggest headache could be selling the paddy stock, the spot price for which is less than half the price it is valued at on the NSEL website.

Last week after NSEL suspended pay-out and FTIL shares plunged, FTIL informed the exchanges that "this action of NSEL does not entail any financial liability on FTIL and that the business of FTIL is as usual."

The fine print of legal agreements between FTIL and NSEL may offer immunity to FTIL and its shareholders. But there are other problems. Promoter Jignesh Shah & Co risk considerable reputation loss if FTIL were to wash its hands off the issue. The lack of confidence in the management is already reflecting in the hammering that MCX continues to take. FIIs and domestic mutual funds held roughly 20 percent in the company, according to shareholding data for the June quarter.

Unlike in the case of FTIL, where most shareholders who wanted to get out have already got an exit due to the absence of circuit filters, many investors are still waiting to bail out of MCX. There are around 13 lakh shares today at the lower end of the circuit filter, waiting to be sold.

The dramatic surge in FTIL shares comes as a surprise, and many momentum traders as well as bargain hunters would be tempted to ride the wave. The question to ask is whether the upswing can sustain.

Even if the NSEL trades are settled sooner than expected, it could be a while, if at all, before the bourse could clock the kind of trading volumes seen till a few weeks back. FTIL’s statement that it cannot be held financially liable for the problems of NSEL has damaged investor confidence considerably.

Another deciding factor will the Forward Market Commission’s audit of the stock held at NSEL warehouses. There is speculation about the quality and quantity of the stock, and only the FMC audit will give a clear picture.

(Posted by Santosh Nair)
Twitter handle: @sant0nair