By S. P. Tulsian & Abhinandan Tulsian

Four founders of Infosys, along with their family members, had sold 3.26 crore equity shares of Infosys, for Rs. 6,484 crores at an average realisation of Rs. 1,989 per share on Monday 8^th December 2014. This transaction has raised eyebrows on various issues of corporate governance, front running and role of big market participants.

To take a step back, Infosys had proposed to issue bonus share in the ratio of 1:1, in its board meeting held on 10^th October 2014, along with consideration of Q2FY15 results, coupled with declaration of interim results. However, while giving notice of board meeting to the stock exchange on 30-09-2014, of consideration of Q2 numbers, no mention of consideration of bonus was stated therein. Is bonus issue not a price sensitive information? Due to this issue, share price moved from Rs. 3,647 on 09-10-2014 to Rs. 3,889 on 10-10-2014, a rise of Rs. 242 in a day! So, does this bonus issue have anything to do with the part stake sale by 4 founders?

It is learnt that five HNIs, of which 2 individuals are very active in the market, while 1 is a prominent investor (also a darling of the media), along with 2 other HNIs, have bought about 1 crore share in the opening trade on Monday 8-12-14, out of the 3.26 crore shares sold by the founders. The news of said sale came to the market on Friday 5^th December evening, with expected price band as well. So, these buying of 1 crore shares happened to play on this stake sale news by promoters. It was seen that in the earlier sale transactions of quality stocks by FIIs, sale had happened at rate lower by about 3 to 4% of its previous close, but share closed generally at the previous closing rate only. Infosys share closed at Rs. 2,070 on 5^th December. Hence, these HNIs have bought around 1 crore shares at around Rs. 1,990 per share, expecting the founders to offload them at around Rs. 2,070 during the later part of the day. Unfortunately, Infosys share kept trading below Rs. 2,000 for major part of the day, finally closing at Rs. 1,970 per share on Monday 8^th December. The said HNIs had infact paid margin money of close to Rs. 200 crore to about 3 NBFCs on the previous day, one of which is a listed leading NBFC from Delhi, promoted by an ex-pharma promoter.

The idea of these HNIs to play on this trade was to make an intra-day gain of about Rs. 80 crore, but they landed up with a MTM loss of Rs. 20 crore. Obviously, these 1 crore shares were held on by the 3 NBFCs on behalf of these HNIs who are now looking for an exit, at or above cost price.

The said data can also be corroborated with FII data of 08-12-2014 as well, wherein FIIs bought shares of Rs. 8,206 crores and sold shares of Rs. 3,222 crores, with net buying of Rs. 4,984 crores. This net buying largely represents value of 2.30 crore shares of Infosys, which was bought by them, with remaining 1 crore shares been bought by these 5 HNIs. It may also be seen that in December, FIIs have an average buy and sell of about Rs. 3,000 crores daily, which also gets co-related with data of 8^th December as well.

Now, as these 5 HNIs are stuck in these 1 crore shares of Infosys, they are seen liquidating their holding in other stocks, largely to meet margin pressure, as NBFC exposures to these HNIs have exceeded limits and comforts. Hence, the correction which we are witnessing in the market since the start of this week has come in after 8^th December and may continue till an exit is found out in Infosys by these HNIs, at or above Rs. 2,000 per share. It is also learnt that an exit rate of Rs. 1,900 per share has been given to them by few institutional investors, for which they are unwilling. Based on this news floating in the market, we gave a level of Rs. 1,900 per share for Infosys, for the last 3 days, where it is likely to settle at. Once, exit is made by these HNIs, shares of IT biggies will again start moving up, with possibility of Infosys again hitting the Rs. 2,000 mark.

With this exit from Infosys, leverage pressure on these HNIs will also get released and tapered, which will see the renewed buying interest coming back in the market.

So in the circumstances, there is nothing negative seen for our markets, with no cause of worry for investors. F&O traders with huge open position, obviously have all the reasons to worry, as they are unable to meet their daily MTM losses. In the process, market is seeing long position getting liquidated, as also market seen becoming oversold, which is also a bullish sign, to make this series expire on positive note, which is expiring ahead of long Christmas vacation.  Also, many other positive events are lined up like GST consensus with states, J&K and Jharkhand state election results on 23^rd December, hike in insurance, coupled with some positive outcome expected from the winter session as well.

So, sometimes local technical moves and events can eclipse the market much more, than global and fundamental factors. This side of the story has not been explored or talked about either by the print or electronic media. We have seen roaring bullish views coming in for the last 10 days from over a dozen investor conferences, as also from annual celebration of a prominent TV channel. So, were they farce, short lived, tall claim or investors’ now have no faith to buy these views of secular bull run story given by “so called vested” experts, on the market.