The Spike In Mahindra’s Stocks: A Case Of Insider Trading?

On June 15, 2013, the Mahindra Group announced a deal with Spain-based CIE Automotive SA to form a global alliance that would have a topline of Rs 15000 crore. As per the agreement, CIE Automotive would acquire a stake in Mahindra's automotive component businesses. This includes five subsidiaries of Mahindra, of which three are listed on the bourses and two are unlisted.

Though the formal announcement came in on May 15, 2013, it appears that some people may have already had wind of this deal and reaped the benefits of this, as the share prices of these three listed subsidiaries have skyrocketed in just a few days.

Mahindra Forging: The shares of this company have surged by a stupendous 77% between May 11 and June 14, 2013. The high-low spreads in the scrip increased significantly in this period. The average daily turnover in this scrip on the exchange also stood at Rs 69 lakh as compared to that of Rs 4.38 lakh in April 2013. This especially spurted from June 4 to June 10, moving 41% in five trading sessions. That’s a pretty steep rise in the share price considering that there was no announcement from the company during this period. In fact, it posted disappointing Q4 numbers on May 22, 2013.

Mahindra Ugine Steel: This stock surged by 53% between June 5 and June 16. The share price rose non-stop in these eight trading sessions and the average turnover was at Rs 50 lakh, well over that of Rs 3 lakh in the previous 30 sessions. In this case too, the high-low spreads rose significantly, crossing 10% on the previous day's closing on three occasions. On May 4, the company said that it intends to increase its capacity by setting up a new facility in Andhra Pradesh. On this news, the stock rose by 3.65%, which hints that surely those who took their positions in the counter were in on some more news.

Mahindra Composites: It is common knowledge that illiquid scrips are best avoided by investors, the reason being lower participation and lesser opportunities of selling your position. Why would any investor be interested in buying an illiquid scrip? Besides, a company that has a market cap of less than Rs 10 crore does not make a case for investment. This scrip surged 46% from May 14, 2013 to June 14, 2013, after which its market cap has reached Rs 15 crore. On May 14, the turnover in this counter was Rs 2.16 lakh against the previous 30 days’ average turnover of Rs 36953, which surely seems suspicious. What explains this movement in the scrip despite no positive from the company?

It is worth noticing that the shares of the parent entity Mahindra & Mahindra have not seen a similar high. No price sensitive information was shared by these companies during this period, which strengthens our conviction that certain people would have been privy to some information.

It is now up to the SEBI to find out why the prices of these companies moved up ahead of the announcement of information that could really have had a bearing on the stocks.