Nithin Kamath, the Chief Executive Officer of leading online brokerage Zerodha, has shed light on a curious trend in the Indian stock market. In a detailed post on social media platform X, Kamath pointed out that many recent initial public offerings (IPOs) continue to see their share prices run up for several days after their market debut.
Beyond Demand and Supply: The Technical Triggers
While acknowledging that limited free float and demand-supply dynamics are obvious contributors, Kamath emphasized that technical factors are also at play. He specifically highlighted a scenario involving intraday traders and short deliveries.
"Many traders attempt to short these stocks intraday, expecting a fall, but if the stock hits the upper circuit, they get trapped with no buyers to sell to. This leads to what’s called a short delivery," Kamath explained in his post.
The Short Delivery and Auction Mechanism
A short delivery occurs when the stock exchange is unable to deliver purchased shares to the buyer's demat account because the seller failed to provide them. To settle these failed trades, the exchange conducts a special auction session the next day between 2:30 p.m. and 3:00 p.m..
Kamath provided a concrete example to illustrate the potential price gap. "For instance, today Meesho's auction price was ₹258, while the market price at the time was around ₹226," he stated. These auctions often settle at a significant premium to the prevailing market price, creating a unique opportunity.
A Strategic Exit for Investors
The Zerodha co-founder revealed that this mechanism presents a strategic avenue for investors. He noted that selling holdings through this short-delivery auction session is a "great way" to exit positions at a potentially higher price.
"By the way, if you hold these stocks in your demat, you can actually offer your shares directly during this auction window. It’s a great way to exit at a potentially higher price while also helping the exchange settle the trade," Kamath advised. He added that this feature is enabled on Zerodha's own trading platform.
Kamath's insights demystify the post-listing volatility of recent IPOs, moving the discussion beyond simple market sentiment. His explanation underscores how specific market mechanics and trader behavior can create upward price pressure, even in the absence of fundamental news. For retail investors, understanding these technical factors is crucial for navigating the often-turbulent waters of newly listed stocks.
