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Grow Mudra's Inside Edge: Operators lighten up on Cummins, structured deals under strain, algo prop firms nervous

31 May , 2024   By : Debdeep Gupta

Grow Mudra's Inside Edge: Operators lighten up on Cummins, structured deals under strain, algo prop firms nervous

Operation unwind

Market operators are struggling to maintain momentum in Cummins India. The long-term story may be promising but domestic fund managers are balking at pricey valuations. While the stock has been on a tear since March, domestic funds have either stood pat or trimmed their positions in March and April. The chatter is that more funds have sold shares in May as well. That is making it difficult for operators to absorb supply given the elevated price and margin obligations. Part unwinding of positions is underway, so this diarist learns.

Too hot to handle

With stock prices under pressure over the last few trading sessions, there is chatter about structured deals between HNIs and brokers coming under strain. To beat the SEBI rule that bars client funding by brokers, many HNIs are said to have entered into arrangements with brokers’ NBFC arms where they have taken loans for tenures varying between 3-6 months and deployed that money in the market. There is no immediate pressure to repay, but the sudden plunge in the market is making many HNIs wonder if they should cut their losses or hang in there hoping for Acche Din post-June 4.

Anxious moments

Proprietary trading firms focused on F&O trading are heard to be nervous, but it has nothing to do with the election results due next week. With senior political leaders, the capital market regulator, and senior bureaucrats having voiced concerns over the surge in retail participation in derivatives, talk is that some tough measures are in the offing. The chatter is that the focus is likely to be on proprietary trading firms that are merrily funding individual traders. So far, prop firms, as they are called in market parlance, have managed to figure out technology workarounds and continue to fund retail traders. Market experts have repeatedly warned that this arrangement sans proper risk management measures is a ticking time bomb. That is because if one big ticket trader suffers a blow-up, every trader in the system stands to get affected, and it could trigger a domino effect.

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