MUMBAI: A penny stock that gained 132 times in less than 18 months is back in news, but for the wrong reasons. The sharp rise and the subsequent fall in the share price of dairy and food processing company Kwality Dairy India (KDIL) has raised eyebrows, with market participants suspecting foul play in the counter. Even though there were no corporate announcements that could have adversely impacted the stock, the share price fell almost continuously, after touching a high of Rs 189 in October.
From around Rs 1.50 (after adjustments to corporate actions) in October 2008, the stock rose to over Rs 190 in February 2010. Currently, it is quoting at a little over Rs 30. In the past two months, the stock has frequently hit the lower circuit and about Rs 3,200 crore (or 84%) of the market capitalisation has been wiped out. The company declined to comment on the stock price, but a spokesperson said that the promoters have not sold a single share and their holdings have remained unchanged for several quarters. "Only a small portion of the promoter holding is pledged and none of those shares have been sold in the market. However, it appears from the market movement in the stock that some shareholders have been selling the shares due to a distressed market," it added.
According to broking circles, a clutch of operators have been active in the counter. "Their modus operandi has been to buy the stock through margin finance, rig up the price and then default...This caused the brokers, who offered the margin finance, to dump the stock," said an official with a leading brokerage. But, the matter did not end here. More than a dozen brokers are crying foul over the incident, alleging fraud by some operators. A Delhibased broker has filed a complaint with the city's Economic Offences Wing for registration of FIR under Sections 406, 420 and 120B of IPC against some investors, market operators and even company officials for defrauding them by manipulating the share price.
"I have submitted a request for registration of FIR under Sections 406, 420, 120 B of IPC against certain individuals, company officials and a brokerage house for hatching criminal conspiracy and acting in connivance with each other with the mala fide intention of cheating by manipulation of share prices," said Parveen Gupta, director, Share India Securities, which is stuck with KDIL shares.
Other brokers, holding the stock, refused to discuss the matter. According to a senior official at one such brokerage: "The investors have started clearing their dues." Interestingly, none of these brokers have complained to capital market regulator Sebi. The company spokesperson said that Kwality Dairy and its directors and employees are in no way connected with the matter. "We are not aware of these people and have no relation with them," he said. According to the complaint, some investors who were allegedly front entities of a UP-based operator (who was banned by Sebi for five years in early 2000) opened accounts with stock brokers to buy large quantities of KDIL shares, but defaulted in paying the full amount.
"These investors purchase heavy quantities of shares through new brokers by making part-payment of the total purchase consideration with an assurance of clearing the balance payments. These shares are then sold through other brokers without clearing their initial outstanding dues, thus causing loss to the brokers where the account was opened for buying the shares initially," said Gupta.
Source: Economic Times