SHORT SELLING - ECONOMY
News: SC
says no to Centre’s sealed cover idea on Adani case
What's in the news?
● The
Supreme Court chose transparency over the government’s sealed cover containing
“suggestions” for a committee proposed to examine Hindenburg Research’s damning
report on the Adani Group, saying that public confidence would take a hit if an
impression was created that the Centre was steering the process with the
court’s nod.
Short selling:
● Short-selling
allows investors to profit from stocks
or other securities when they go down in value.
● In
order to do a short sale, an investor has to borrow the stock or security
through their brokerage company from
someone who owns it.
● The
investor then sells the stock, retaining the cash.
● The short-seller hopes
that the price will fall over time, providing an opportunity to buy back the
stock at a lower price than the original sale price.
● Any
money left over after buying back the stock is profit to the short-seller.
Advantages:
● Provides liquidity
to the market, which may reduce stock prices, improve bid-ask spreads and
assist in price discovery.
● Ability to hedge
an existing portfolio’s long-only exposure and reduce the overall market
exposure.
● Short
Selling helps the manager use capital proceeds
to overweight the portfolio’s long-only component.
● Exposure to both short
and long positions can minimize a
portfolio’s overall volatility and the ability to add meaningful risk-adjusted
returns.
Risks:
● While
short selling can be a profitable strategy for some investors, it also brings a
level of risk and potential for market
manipulation.
● Short
selling can drive down the price of a security, leading to a negative impact on the company and its
stakeholders.
● Additionally,
if the stock price does not fall as expected, the short seller may have to
purchase shares at a higher price, resulting in significant losses.