An unpredictable market is driving these investors to lend their blue-chips to short-sellers.
According to stock brokers, Investors who have idle shares,especially in banking, IT,infrastructure and oil & gas sectors, can earn 5% to as high 15% annualised returns if they lend stocks to traders who want to engage in reverse arbitrage or go plain short on stocks.
The trend of lending stocks on SLB (Stock Lending and Borrowing) platform is catching up among investors who have long-term stock portfolios.The number of SLB transactions has gone up steadily from about 200 trades in January to over 1600 in November this year (2011).
Investors are seeing this as an opportunity to earn risk-free income. Investors with idle shares (stocks that are held for long-term value appreciation) in their portfolios are lending stocks to short-sellers.
Were selling this idea to our investors as well, said Mr. Anshu Kapoor, Head (Wealth Management) ,Edelweiss Financial Services. Stock lending mechanism enables lending of idle securities by the investors through the clearing house of stock exchanges. Suppose,a stock is quoting at Rs. 1,600 in the spot market and Rs 1,580 in futures. A trader can borrow the shares,sell them in the cash market, buy futures to cover the price risk and then later buy back the shares from the spot market to return them to the lender. Lenders get back the shares on the first Thursday of the month. The difference from arbitrage less the lending charges is the profit that traders make.
The screen based exchange traded platform allows 2 parties to lend and borrow stock for a fixed period maturity. It is an all-win situation for the lender as he earns lending fees and also retains all ownership benefits of the stock which include dividend pay outs and bonus issues.
Source: ET
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