Groww faces 30 lakh-share auction; analysts flag deepening short-seller trap

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NSE data on Tuesday showed that more than 30 lakh shares of Groww-backed Billionbrain Garage Ventures had moved into the auction window, a scale analysts described as unusually large.

The development underscores how a wave of short sellers appear to have misjudged the stock’s sharp post-listing momentum. Expecting the rally to cool quickly, several traders sold shares they did not hold, assuming they could repurchase them at lower prices the same day. Instead, the stock continued to climb, leaving many unable to arrange delivery on the settlement date and forcing a substantial quantity into the auction segment, analysts said.

The intensity of the squeeze reflects the strong demand behind the counter. Groww listed on November 12 and has surged nearly 90 percent from its issue price of Rs 100 a share within just four sessions. Its market capitalisation has crossed Rs 1.17 lakh crore, overtaking BSE Ltd, which is around Rs 1.15 lakh crore and surpassing several Nifty constituents, including Tata Consumer Products, Max Healthcare Institute, Apollo Hospitals Enterprise, and Dr Reddy’s Laboratories.

Short sellers caught on the wrong side now face heavy penalties. Rajesh Palvia of Axis Securities said the exchange typically imposes a 20–25 percent penalty in a close-out when delivery cannot be provided. A close-out is the exchange’s settlement mechanism used when a seller fails to deliver shares they have sold. Instead of making the buyer wait, the exchange compensates them with money—usually 20–25 percent above the traded price—while the seller bears the penalty. In this process, the buyer receives the enhanced payout but does not get the shares.

Even if shares are procured through the auction window, he said, the cost remains broadly similar. For buyers expecting delivery, the exchange credits the close-out amount instead—someone who bought at Rs 100, for instance, would receive Rs 125, but no shares. Palvia noted that this process is technical in nature and does not influence the stock’s underlying fundamentals and expect the price to continue reacting mainly to market conditions.

Analysts described the episode as a classic short squeeze, with limited available delivery and intraday shorts forced to absorb penalties, adding to the upward pressure on the stock.

Prashanth Tapse of Mehta Equities said the auction-related squeeze may leave room for a bit more upside, but the scope appears limited after such a steep post-listing rally. He noted that valuations are now elevated and that profit-booking typically emerges once short-covering effects begin to fade.

According to Tapse, price action usually stabilises once the auction settles. Given the sharp appreciation and stretched valuations, he added, conservative investors may consider booking partial or full profits at current levels.