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A ‘Massive’ Short Squeeze Is Hitting India on Quirky Bailout

Bank Bailout Conditions Prompt ‘Massive’ Indian Short Squeeze

A ‘Massive’ Short Squeeze Is Hitting India on Quirky Bailout
A worker washes lemons inside a Sweetgreen Inc. restaurant in Boston, Massachusetts, U.S. (Photographer: Adam Glanzman/Bloomberg)

(Bloomberg) --

Shares of Yes Bank Ltd. have more than tripled from a low this month as the terms of India’s largest-ever bank rescue have left short-sellers scrambling to cover positions.

The bailout plan, which involves other of the country’s lenders pumping about 100 billion rupees ($1.3 billion) into Yes Bank, came with an unusual rider: Investors who hold more than 100 shares cannot sell 75% of their holding for at least three years.

The drastic reduction in shares available for trading has forced investors to cover short positions in Yes Bank futures at losses. That’s helped drive a standout equity rally in the beleaguered lender, even as most of the world’s bank stocks have tumbled amid the coronavirus crisis and increased central-bank stimulus.

“This would be the most massive squeeze for short sellers of a stock in India in at least a decade,” said Sameer Kalra, founder of Target Investing in Mumbai. “The quantity of shares available for short sellers to buy and cover their trades with is very small because of the selling restrictions. They’re only able to get it very slowly and at a high price.”

A ‘Massive’ Short Squeeze Is Hitting India on Quirky Bailout

The lender has almost 62,000 futures outstanding, near a record, with contracts expiring next week being the most owned, data compiled by Bloomberg show.

Once the futures short covering is complete, traders will lose their incentive to actively buy the shares, removing a key driver of Yes Bank’s global peer-beating rally. The stock surge could last until the end of the month, Kalra estimates.

©2020 Bloomberg L.P.