Market alert: Ranbaxy shares jumped 22% last week. Was insider trading involved?

The 22 percent surge in Ranbaxy shares in six trading sessions before the announcement of the deal with Sun Pharma shows that a section of market players knew of it, and would have benefited from the information.

Ranbaxy shares fell to a low of Rs 306 on January 27, after the USFDA banned exports from the company’s Toansa unit to the US, for violation of manufacturing rules.

Between January 27 and March 27, the stock traded in a range between Rs 306-345, mostly with an upper bias.

The stock then took off last week, with average daily trading volumes on both exchanges for the previous three trading sessions climbing to 1.2 crore shares, almost five times the usual average.

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Market has been abuzz with talk of Daiichi selling its stake in Ranbaxy, and there were whispers that Sun Pharma could be one of the potential buyers.

Some of the savviest investors on Dalal Street are said to have been steadily accumulating Ranbaxy shares over the last few weeks.

The heavy purchases last week indicate that many of the buyers would have precise information on the timing of the deal. Market operators punting on Ranbaxy have lost a packet in the last 9 months, due to a series of strictures from the USFDA.

The regulatory action has resulted in the company having to suspend exports from its 4 plants at Toansa, Mohali, Dewas and Paonta Saheb, leading to steep erosion in earnings.

This is the second instance of suspected insider trading in the market over the last one month. On 14 March, Santosh Nair of moneycontrol.com had reported that traders with insider information may have made a quick buck in the case of L&T Finance Holdings offer for sale (OFS).

A section of players would have had a rough idea about the likely floor price for the OFS issue resulting in a 7 percent fall in the stock ahead of the company’s announcement of the price.

The OFS was aimed at reducing promoters stake in the company and comply with Sebi’s minimum public shareholding rule. On paper, the rule on disclosure of the floor price is strict.