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Concepts & Tutorials

Chipkaofication: When You Thulp Stocks On To Greedy Investors At Magnified Prices

We have a new word for:

Chipkaofication (noun): The act of making certain investors buy at inflated prices after which the stock price falls big time.

“Chipkao” is a hindi word that means “to paste something with glue”.

But in colloquial terms, this concept is to give something to someone that isn’t necessarily nice, and then they’re “stuck” with it.

The JP Associates Saga

Now consider a stock called JP Associates. They are a big company. At end Jun 2014, they had about 220 cr. shares outstanding. The stock was at Rs. 80 then so the company’s market cap was nearly 20,000 cr.

Then they had a Qualified Institutional Placement (QIP) for Rs. 1500 cr. at Rs. 70.27 per share. This added 21.33 cr. shares (effectively a 10% dilution). Supposedly, those who bought were qualified institutions.

At the same time promoters sold shares in the open market. And then, after the QIP, the stock started to fall, and continued its downward trend.

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Even September, promoters sold on three consecutive days before the stock just went to hell.

Here are the promoter sales, revealed to the stock exchanges:

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Promoters of course are saying that they sold insignificant quantities (only about Rs. 180 cr. after all, which is next to nothing). This will meet their requirement of funds including for “social cause”.

Who are the QIP Investors?

All fairly big names it turns out. (Source: BSE)

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Is this Chipkaofication?

It’s obvious that some of these large investors with very trustworthy names are holding stock that has fallen tremendously in value.

The rise in the stock to the Rs. 90 level, a QIP and a sudden retreat to the 34 level sounds a little difficult to believe as “fundamental”. It’s almost as if the stock magically went up, the QIP investors bought at the high values, and then the stock went back to being in the doldrums. It wouldn’t be out of line to believe that these QIP investors were “chipkaoed” with these shares.

Of course, in the meantime, the company has sold a lot of assets to pare its large debt. But still, the fall has been quick and during a time when market indexes have hit new highs – can you imagine a large stock falling 50% while the index went up 10%?

And if, meanwhile, promoters sell part of their holding, you kinda start looking for the word “loser” written on your forehead.

There’s nothing illegal about this concept – of course you want to sell stocks at high levels, and if your stock is at a high enough level, you might as well get investors to buy at those prices. But when these things happen you wonder if QIP investors will ever believe Indian promoters any longer.

And Another One: C Mahendra Exports

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Turns out Bennett got in at the worst time possible, after the share had run up nearly 3x over the previous year. And then, boom. Looks like Chipkaofication, no?

Any others you know about?

  • Aravind says:

    Sri AshtaVinayak is one other stock.

  • Very similar to pump and dump but I guess, chipkaofication has a few specific victims rather than public in general 🙂

  • Ankit Shah says:

    Your ‘chipkao’ adage to the JP case is just. But my point is different. Of all the QIPs mentioned in the JP case above have been operating in Indian capital markets for long. When they get chipakoed like this its fishy. Firstly they are so called marquee names, secondly they must have done their share of due diligence before lapping up the issue. And finally they must have has a truck load of analysts tracking the company since god knows hoe many years.
    This all leads me to believe that the so called gold plated financial foreign institutions are run like sophisticated bucket shops of the 1920s and they too must have chipakoed tese shares to their fund investors. Its quite disappointing that the torch bearers of fianancial securities market aren’t themselves worth of even carrying the TORCH.

    • Agreed. In all probability, they “chipkaoed” the stock on to someone else. Conceptually, relay chipkaofication 🙂

      • Adheer says:

        Firstly, it may be that these marquee name institutions (Citi, Deutsche) are underwriters or do business with the JP group and this QIP purchase is a some sort of quid pro quo.
        Secondly, these institutions may be custodians, so in reality the QIP issue is (will be) “chipkofied” to the clients of these institutions.

  • Krish says:

    On one of the worst day in my life after going through HDFC Sec recommendation report, bought JP Power for a price of 22. It recommended that fair value of the stock as 28.
    Worse, I did not keep any SL. Once the TAQA deal got over, stock started to fall. It did not stop anywhere and came straight to 12-13 levels. Finally I sold at 17.20 registering one of the worst loss in my life of around 100K.
    Got a great lesson and understood why great investors talk about management quality, brand, debt and so on. These stocks only benefit owners, operators, manipulators but never investors.

  • There would be many of course, but I suggest you dig up Karuturi Global – a story that proves the adage ‘if it is too good to be true it probably isn’t’.

  • catbert says:

    PTC around 2008. In the wake of Reliance Power IPO madness, PTC did a QIP at around 150 per share. In a year, it was down to below 50 though in their defense the Sensex itself fell from 21,000 to 8,000 but it was a lesson for me. QIP is not a guarantee for anything – stoploss is the king.

  • Premal says:

    Hi Deepak …. this concept if going on for long time …. also in the cases of most of the IPO also …. its a big racket where along with the promoters even the merchant bankers and Institutions are also involved …… and in this hype …. retail get stucked. This will continue and will grow bigger …. buy hope we learn mistake from past.

  • Leo says:

    IMAGING this chepofication in SENSEX stocks…this is the real trick of the central banks …leverage is bigger than before…

  • sumon says:

    Layman’s conclusion after 6 yrs in stock market:
    Insider trading and crooks are everywhere in the stock market.
    There is no way to identify crook companies.
    Safest bet is to limit expectation and stick to Index ETFs, preferably the diversified market cap oriented ones.