On Wednesday, 6 October 2021, Nalco (National Aluminium Company Limited) was the only stock to be put under NSE’s F&O (futures and options) ban. The scrip had crossed 95% of the MWPL (market-wide position limit) which forced NSE to place it under a ban.
Read on to know more about this company and why its stock has been banned.
About the Company- National Aluminium Company Limited
Nalco is a Navratna CPSE under the Ministry of Mines and Asia’s largest integrated aluminium complex. The mining company was founded in 1981 in Bhubaneswar and had other units in Odisha at places like Angul and Damanjodi.
Nalco has integrated operations in mining, power and metal and is a group ‘A’ CPSE. It has the largest Bauxite-Aluminium-Alumina Power Complex in the country. Nalco has registered sales offices in cities like Kolkata, Chennai, Mumbai, Delhi and Bengaluru, in addition to 9 stockyards at various locations.
The company has a mining and refinery complex at Damanjodi with a normative capacity of 68.25 lakhs TPA for bauxite and 21 lakhs TPA for alumina. It also has a 4.6 lakh TPA (tonnes per annum) aluminium smelter and a 1200MW captive power plant at Angul, Odisha. In addition, Nalco has bulk shipment facilities at Vizag port, Paradeep port and Kolkata.
Financial State of Nalco
The company reported a consolidated total income amounting to Rs. 2506.29 crores for the quarter that ended on 30 June 2021. This is a 77.26% increase from the same quarter in the last financial year. Nalco shares have generated multi-bagger returns in 2021, surging 130% year-to-date compared to 220% in the previous fiscal.
Despite the challenges of Covid-19 pandemic, Nalco made steady progress in 2021. It has increased its aluminium production, profits, production capacity and new projects. Its future plans include expanding the 5th Stream of Alumina Refinery to one million tonnes per annum capacity by 2023-24.
What is NSE’s F&O Ban List, and When Does It Apply?
Stock exchanges often impose a ban on certain stocks to prevent excessive speculative activity. During this period, traders cannot open any new or fresh positions in the stock but can reduce their positions by squaring off their contracts.
The National Stock Exchange (NSE) imposes an F&O ban when a stock’s aggregate open interest crosses 95% of the MWPL. Market-wide position limit (MWPL) is a limit for the maximum number of unsettled contracts for any derivative share. Open interest consists of all outstanding buy or sell positions in the securities, options contracts and futures.
MWPL refers to the lower one of the following two values:
- 20% of all shares held by non-promoters, or free-float holding
- 30X average number of shares traded daily in the preceding month
Hence, when Nalco crossed 95% of the MWPL, NSE placed it under a ban. This F&O ban remains till its aggregate open interest reaches 80% MWPL or below. After that, normal trading of the scrip can continue.
What Happens When Traders Violate an F&O Ban?
If a trader violates this ban by increasing or creating a new position, they will have to pay a certain fine. This amounts to 1% of the value of the increased position, subject to a minimum of Rs. 5,000 and a maximum of Rs. 1 lakh.
An F&O ban can cause huge losses to traders holding open positions when they are caught unaware. This is because these traders may have to square off their existing positions in the future or options.
However, traders who are alert may avoid such losses. NSE provides an alert facility for the open interest of futures. These alerts happen in intervals of 10 minutes when contracts in securities exceed 60% of their specified MWPL.
Traders need to be careful and frequently check the F&O ban list to avoid losses. This is especially true for stocks with low free float, as dishonest traders can easily exploit this situation to manipulate liquidity.
Frequently Asked Questions
- When can traders know which securities may enter NSE’s ban list?
If the MWPL of a stock crosses 80%, it will likely enter NSE’s F&O ban list in the near future. One can filter these stocks and place them in the possible entrants’ table to keep track.
- How to check if a banned stock is about to leave the ban list?
You can check the NSE’s possible exits to know the F&O securities already on the ban list, which may leave it soon.
- What is the purpose of NSE’s F&O bans?
The regulatory authority bans certain stocks to prevent speculative activity from getting out of hand. Otherwise, they can affect the stability of the market and lead to a loss of investor confidence.