ICICI Bank: Over Rs 3000 Crore Exposure in Maytas?

This is an SMS that I got from a VP of a top brokerage house in India:

"Banking sources say ICICI Bank has the largest exposure of over Rs 3000 crore mostly in guarantees for Maytas Infrastructure assuming timely completion of projects it bagged. Work on these projects is said to have come to a standstill for want of working capital. Take care if you hold ICICI."

If this is what a majority of the market gets to hear by Monday, then GOD help the ICICI stock. Only the next few days will tell whether this is a rumor or a fact.

ICICI Stock Price: A Quantitative Aspect

The graph below shows the trench between the Standard Deviation of the opening price of ICICI stock on 8th of every month and the closing price for the 10th of next month for 16 such successive periods. If the fall in the ICICI stock between 8th September, 2008 and 10th October 2008 was indeed abnormal, then the trench for that period (T2: at -13.03) should be the largest, but the graph shows that the deepest trench between the SDs was in the period T7, sometime close to January 2008. The numbers and data suggest that the SD seen in the ICICI stock prices and the trenches are not abnormal during the current year and have in fact been lesser that previous monthly averages. Thus the idea of rumors causing its stock to sink by 50% does not quite seem logical to me. But then again, this is purely based on the movement in stock prices.

Toxic Trading in ICICI Bank

Around 2:45 pm today, I got news from my friends at BSE that rumours were widespread about ICICI bank thinking of filing bankruptcy but the RBI not allowing it to do so. This was when Sensex had tanked by more than 280 points and Nifty was down by more than 90 points.
When i got the news confirmed, I was told that the rumour was injected on purpose by some traders are BSE so that ICICI stock gets slaughtered and can be bought at throwaway prices for short term gains. I must admit, I had heard about “toxic trading” but this is the first time I saw it in action. My source told me that the traders made more than Rs 37 lakhs per trade because of this and they entered the strategy in 3 phases. That means that these people took away more than Rs 1 crore by the close of the session at the expense of retail investors.

Toxic Trading is a strategy which is unethical in nature. In this, rumours, which act as toxic news, are spread in the market to adversely or positively impact the stock price of a company and trade on this in order to make short term gains. This works well when the stock in consideration already has some negative or positive event affecting it. This impact is multiplied by using such toxic news. Toxic Trading was possible today in ICICI on back of the news that it had exposure to Lehman Brothers and as a consequence of Lehman going bankrupt, it would book a huge loss.