Was there insider trading in Ranbaxy stock?

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While corporate India was absorbing the mega acquisition of Ranbaxy Laboratories by Sun Pharmaceutical Industries on Monday for $3.2 billion, what has come to light is that there could have been a case of insider trading in shares of Ranbaxy Laboratories.

Market watchdog Securities and Exchange Board of India (SEBI) may be looking into the trading pattern of Ranbaxy to see whether there was any violation of securities law, it is understood. However, when contacted a SEBI official declined to comment.

On Friday, March 28 Ranbaxy’s share price quoted at Rs. 364.05 on the BSE at the close of trading hours and remained flat at Rs. 365.05 on Monday, the next trading day. It rose to Rs. 370.70 on Tuesday. However, there was a spurt in price on Wednesday when it zoomed to Rs. 404.1. The rally continued on Thursday to Rs. 424.8 and Friday it closed the week with a sharp weekly gain of around Rs. 95.5 or 26.26 per cent.

Over the same period Sun Pharma moved from 563.50 to 571.90, which seemed insignificant. Further, during that period the BSE 30-Share Sensitive Index (Sensex) moved up by only 20 points to 22359.50.

“There appears to be some sort of insider trading considering the sharp rise in prices and volumes which ultimately ended with the deal being announced on Monday,” said Arun Kejriwal, a leading financial markets analyst. According to him, it appeared that the whole market was aware of some sort of deal happening in Ranbaxy with the suspense being over the swap ratio or valuation.

“ Why could the regulator not sense something amiss in spite of having the best surveillance systems? It is indeed a mystery,” Mr. Kejriwal added.

“Whenever such big transactions happen, we see some amount of position building due to various reasons,’’ said Deven Choksey, Managing Director, K.R. Choksey Share & Securities.

“It is the prerogative of the regulator to establish any wrong doing in such transactions. In this transaction, I don’t see too much scope because Ranbaxy stock price continued to remain in a discounted zone, despite the fact that the company holds a significant potential in the form of its business and prospects therein.”

Interestingly the rupee was also steady and moved only in a very small range during this period. Normally when the currency depreciates, these (information and pharmaceutical) companies, which are net export-earners stand to benefit most.