Smart traders sniffed out RBI alert on HDFC Bank; made a killing


A section of traders in the stock market appeared to have got wind that the RBI notification banning further purchases in the HDFC Bank
stock was coming. Nothing else can explain the sudden fall in HDFC Bank shares between 1:00 pm and 1:35 pm on Friday, as the price fell from Rs 1423 to the day’s low of Rs 1368.

The stock exchanges flashed the RBI notification banning further FII purchases in the stock at 1:39 pm.

Interestingly, the stock started firming up after the announcement and climbed to Rs 1382 over the next half an hour. Brokers attributed this rise to short covering of positions. Most likely, informed traders who had sold just before the RBI notification becoming public, would have covered their positions.

The stock exchanges have already told the custodians of the FIIs that purchases made after 1:40 pm on Friday — when the RBI notification about the breach of the limit was flashed on stock exchange terminals — will not be settled.

This is learned to have been done at the instruction of the RBI, said sources.

It is not clear if the FII trades done in the stock after 1:40 will be reversed or if they will become the liability of the broker who bought the shares on the behalf of the FIIs. Reversal of trades can pose legal issues if the sellers of the shares decide to challenge the ruling. Holding the brokers liable too can lead to legal challenges, especially if brokers can make a case that they did not have adequate time to withdraw their orders.

It is learnt that some pending orders in the trading system got executed after 1:40, before they could be withdrawn.

There is no clarity on how much the 74 percent limit has been overshot by. A little over 7 crore shares — around 3.5 percent of the equity base — resulted in delivery on both exchanges combined.

Market sources say a substantial chunk of the shares would have been bought by FIIs. This is the first time that the RBI had to issue a notification banning purchases by FIIs in the middle of the trading session. Usually such announcements are made after trading hours when custodians submit the details of their purchases to the RBI.

On Thursday evening, the RBI permitted open market purchases by FIIs as the foreign holding had “gone below the prescribed limit stipulated under the extant FDI Policy.” The RBI release did not mention by how much the FII holding had fallen.

The RBI usually raises a red flag when the FII holding in a stock is 2 percent away from either the statutory limit for a sector or a company board-approved limit, which varies across firms.