Understanding the ‘Short Delivery’ Phenomenon
Zerodha CEO Nitin Kamath has shed light on a critical technical factor driving post-IPO rallies in the Indian stock market. According to Kamath, the phenomenon of ‘short delivery’ is a key contributor to the significant gains observed in IPOs up to a few days after their listing.
Kamath explained that 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. To settle the trade, the exchange conducts an auction the next day between 2:30 p.m. and 3:00 p.m. Rates at these auctions can reach up to significant premiums from the original market prices.
Meesho’s Auction: A Case Study
The Zerodha CEO cited the example of Meesho’s auction, where the auction price was Rs 258, while the market price at the time was around Rs 226. This significant difference in prices highlights the impact of short delivery on the stock’s performance.
Kamath’s remarks come amid Meesho’s blockbuster performance a week into its listing on the exchanges. The stock price has more than doubled in just seven sessions, increasing by 110%. The shares reached an all-time high on Thursday after rising 17.6% to Rs 254.40 apiece. The stock settled nearly 9% higher at Rs 235.57 apiece.
India’s Startup IPO Pipeline: A New Era
India’s startup IPO pipeline is back in full swing, and this time, it looks very different from the exuberant listings of the past cycle. Recent debuts by Groww, Lenskart, and Pine Labs underline both the renewed appetite for tech listings and the growing caution among public market investors.
Fintech firm Pine Labs listed on Nov. 14 at Rs 242 per share, a 9.5% premium to its IPO price of Rs 221. However, post-listing momentum has faded. As of Dec. 18, the stock trades around Rs 225 on the NSE and Rs 224.75 on the BSE, down about 7% from its debut price.
In contrast, Groww, operating as Billionbrains Garage Ventures, has delivered a stronger post-listing performance. The online brokerage listed on Nov. 12 at around Rs 112–114 per share, implying a 12–14% premium to its IPO price of Rs 100. The stock surged to Rs 134 on debut before closing near Rs 131.
Implications for Indian Investors and Traders
For Indian investors and traders, understanding the concept of short delivery is crucial to navigating the post-IPO market. By recognizing the potential for short delivery, investors can make informed decisions about their investments and avoid getting trapped in a short squeeze.
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Conclusion
In conclusion, the phenomenon of short delivery is a critical factor driving post-IPO rallies in the Indian stock market. By understanding this concept and its implications, Indian investors and traders can make informed decisions about their investments and navigate the complex world of IPOs.
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