Porinju Veliyath Breathes New Life Into Dolly Khanna’s Infamous “Fat Finger” Stock

Old timers will recollect that balmy day in October 2012 when the World turned topsy turvy for a few moments.

The day started normally. The punters were busy going about their daily ablutions of buying and selling stocks.

Suddenly, there was flash crash. The Nifty slumped a massive 15%. Big-ticket stocks like Sesa Goa, State Bank of India, Axis Bank, Cipla, HCL Technologies, Bharti Airtel, Hindustan Unilever and Tata Motors plunged like there was no tomorrow. The circuit breakers were tripped off and alarm bells started clanging. Panic-striken punters were running helter skelter.

The sleuths of SEBI, NSE and BSE immediately swung into action to trace the source of the freak trades.

Emkay Global Financial Services was the culprit. Investigation revealed that a “fat finger” operator at Emkay mixed up the volume and price columns on a trade and punched in an erroneous sell order for Rs. 660 crore worth of Nifty stocks.

Templeton Mutual Fund, one of Emkay’s clients, had asked it to sell a basket of shares comprising the Nifty index. However, instead of a sell order worth Rs 17 lakh on Nifty, the dealer punched in a sell order of 17 lakh shares of the 50 Nifty shares, worth Rs 974 crore.

The “fat finger” freak trade became a millstone around Emkay’s neck. It suffered colossal losses of Rs 51 crore and sought to avoid the losses by seeking an annulment of the trades. However, NSE refused on the ground that there was a failure of risk management procedures by Emkay. This sparked off a prolonged legal battle between the disputing parties.

Dolly Khanna, one of our favourite stock wizards, was caught unawares. As of 30th September 2012, Dolly held 269,158 shares of Emkay.

Fortunately, the issue was resolved in March 2015 when SAT brokered a settlement between the parties in a give and take formula.

Understandably, whilst the conflict was raging, Emkay became a pariah for investors. In Emkay’s own words, the conflict was an “existential threat” which could have wiped off the Company. Dolly was caught in a “no man’s land”. The micro-cap nature of the stock (present market capitalisation of Rs. 150 crore), coupled with low liquidity, meant that Dolly was trapped with no exit route.

Porinju Veliyath has now come forward as a knight in shining armour to rescue Dolly. He bought 130,000 shares yesterday at Rs. 56.93 each, sending the stock rocketing to the upper circuit and sparking interest amongst his vast legion of fans.

Prima facie, Emkay appears to be one of Porinju’s “low conviction”, “hit and run” sort of trading stock. This inference can be drawn from the fact that Porinju has not been vocal about it. Normally, he likes to talk of the stocks where he has conviction while keeping a tight lip over stocks where he is seeking to make a quick buck.

Whether this inference is correct in the case of Emkay Global or whether there is fundamental merit in the stock requires to be seen.