“Groww has only about 7% free float – meaning very few shares are actually available for regular trading. In stocks with such low float, even basic trades like BTST or any short-selling attempt can easily go wrong and end up in delivery issues,” said Ishan Tanna, Research Analyst at Ashika Institutional Equity Research.
Once a seller cannot deliver shares on settlement day, the exchange marks it as short delivery, which then enters the auction market.
What is happening now?
The exchange has identified that sellers could not deliver more than 30 lakh shares. These shares will now be bought in the auction session, where the exchange procures the missing shares from other market participants at a premium if needed. The cost of that premium is passed on to the defaulting seller.
Because supply is scarce and the stock has risen sharply, analysts say auction prices can be significantly higher than the normal market price, which means short sellers may face heavy losses.Why did this happen?Groww shares have risen nearly 89% above the IPO price and more than 60% above the listing price in just days. With the stock hitting new highs, many traders likely expected a correction and took short positions or BTST trades that failed.
Add to that the fact that Groww’s float is tiny, and the risk of “short squeeze-like” conditions grows. A low float means it is easier for demand to overwhelm supply. Once shares become scarce, anyone who sold without holding shares gets trapped.
A bit of background
Groww’s current market cap has crossed Rs 1.15 lakh crore, compared with around Rs 61,000 crore at IPO pricing, a jump many analysts call potentially stretched.
Vipul Bhowar, Senior Director & Head of Equities at Waterfield Advisors, said Groww’s ability to rapidly expand users and monetise them has earned it tech-style valuations, far higher than rivals. “However, broking is a cyclical business, and when markets stall, revenue can slow significantly. Based on all this, we think Groww’s valuation might be a bit too high and ahead of itself,” he cautioned.
He added that while technology improves scalability, the discount-broking industry remains extremely competitive and highly regulated. “Any adverse SEBI regulation aimed at protecting retail investors can quickly reduce revenues. Assigning very high multiples in such a cyclical and regulated business can be hard to justify,” he said.
What happens next to the 30 lakh auction shares?
In the auction, shares are bought from other investors willing to sell in the auction. If the shares are bought at a higher price, the difference is recovered from the defaulting seller. The buyer who originally purchased the shares gets them a day later.
“Groww auction shares show that short sellers couldn’t cover in time. It’s a clear reminder going against market momentum can backfire quickly,” said Tanna
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
