Shares of Zee Entertainment Enterprises Ltd may open 10% lower on Tuesday and fall further, market participants said, as the termination of its merger with Sony Corp. group’s Indian entity sparks block deals and liquidation of long positions.
Mutual funds including Aditya Birla Sun Life MF, Kotak MF, ICICI Prudential MF and Nippon India MF, hold 32.49% of Zee’s equity, while insurance companies like Life Insurance Corp., SBI Life and HDFC Life Insurance Co., hold 10.66% and foreign portfolio investors, including Norges Bank and Vanguard, etc., hold 28.19% as of the December quarter end.
“There could be large block deals, given the high institutional holding in the stock,” said Chandan Taparia, SVP at Motilal Oswal Financial Services.
He added that along with cash sales and long liquidation, there could be a huge build-up of shorts, which could drag down the stock to the lower 10% limit and further after market opening on Tuesday.
A 10% gap-down opening could drag the stock down to ₹208.26 initially. Specified stocks are traded on the cash and derivatives segments of exchanges like NSE and BSE.
Rajesh Baheti, director of Crosseas Capital, expects the stock to test ₹200 a share, from Saturday’s closing of ₹231.40.
“The question uppermost in everybody’s mind is how a person with less than 4% shareholding could hijack the deal despite the presence of a significant institutional holding. Did they have any say, at all,” Baheti wondered.
The problem for many traders long on the stock is its under a ban on the derivatives segment—meaning no fresh futures and options positions can be taken unless a penalty is paid; only fresh positions can be squared off in a ban to bring down the open positions (outstanding buy-sells). This will compel those bullish on the stock futures contracts being forced to close these positions out by selling them, adding to the downward price pressure.
Taparia said the ban might sustain, as those wanting to initiate fresh bearish bets could initiate them by paying a penalty of ₹5,000 per lot (3,000 shares) per day.
Alternatively, while the long liquidation can bring down the outstanding positions and take the stock out of ban on Wednesday, fresh short creation could once again put it in the ban period.
A stock enters a derivatives ban when its aggregate open positions exceed or trade at a certain proportion of its market-wide position limit stipulated by the exchange.
For instance, on Saturday, Zee’s aggregate open position was 158.7 million shares against a market-wide limit of 184 million shares. The stock has been in ban since 11 January.
Longs have been liquidating their bullish positions since then with open positions of the active futures contract falling from 111.3 million shares on 10 January to 86.2 million shares on 20 January as price fell from ₹260.9 to ₹230.6 over the same period.
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Published: 23 Jan 2024, 06:00 AM IST