e rit ar et in ndia 14.21
Short Selling iPo
Initial Public Offer (IPO) is an event of share
Sale of a share which is not owned. This is done by issuing when a company comes up with its share/
someone after borrowing shares from stockbrokers securities issued for the first time.
promising to replace them at a future date on
the hope (speculation) that the price will fall by Price bAnD
then. He fetches profit if price of the share really A process of public issue where the company gives
fell down by the future date of replacement and a price range (known as price band) and it is left
sustains a loss if the price increased. Recently, upon the share applicants to quote their prices on
short selling has been allowed in India by SEBI. it—the highest bidders getting the shares. This is
a variant of share issue at premium but considered
beAr AnD bull a safer choice.
A person who speculates share prices to fall in
future and so sells his shares and earns profit is ecb Policy
a bear. He earns profit out of a falling market. A prospective borrower can access external
Basically, here he is short selling the shares. commercial borrowings (ECBs) under two routes,
Opposite to bear, bull is a person who namely the ‘automatic route’ and the ‘approval
speculates share prices to go up in future so either route’. ECBs not covered under the automatic
stops selling the select group of shares for that time route are considered on case-by-case basis by the
to be reached (he is basically taking long position RBI under the approval route. The High Level
on those shares) or starts purchasing that select Committee on ECB took a number of decisions
group of shares. in September 2011 to expand the scope of ECBs
which include:
Thus, a bear increases the number of shares
(i) High networth individuals (HNIs) who
in a stock market activating a general fall in the
fulfil the criteria prescribed by SEBI can
index—a bearish market. Opposite to it, a bull
invest in IDFs.
creates a scarcity of shares in the stock market
(ii) IFCs have been included as eligible issuers
activating a general rise in the share prices and the
for FII investment in the corporate bonds
index—a bullish market.
long-term infra category.
Brokers play as a bear for some stocks and as a
(iii) ECB would be permitted for refinancing
bull for some other stocks. while a bear broker is a
of rupee loans of infrastructure projects
non-entity, a bull is remembered for long time to
on the condition that at least 25 per
come—Harshad Mehta was known as the Great cent of such ECBs shall be used for
Bull. repayment of the said rupee loan and 75
per cent invested in new projects in the
book builDing infrastructure sector (but only under the
A provision allowed by SEBI to all Initial Public approval route).
offers (IPOs) in which individual investors are (iv) Refinancing of buyer’s/supplier’s credit
reserved and allotted shares by the company. But through ECBs for the purchase of capital
the issuer has to disclose the price (at which shares goods by companies in the infrastructure
have been allotted the size of the issue and the sector was approved. This would also be
number of shares offered to the public). permitted only under the approval route.