In a recent LinkedIn post, Nithin Kamath, founder of Zerodha, discusses a nuanced trading phenomenon observed in recent Initial Public Offerings (IPOs) – the tendency for these stocks to continue rising for several days post-listing and the underlying technical factors that might contribute to this trend.
Kamath highlights that while the immediate drivers of demand and supply, particularly limited free float, are evident, there are also technical aspects at play. He explains a common scenario faced by traders:
“Many traders attempt to short these stocks intraday, expecting a fall, but if the stock hits the upper circuit, they get trapped with no buyers to sell to. This leads to what’s called a short delivery.”
This situation, as Nithin Kamath points out, can lead to a specific market mechanism designed to settle such trades. When short delivery occurs, the stock exchange facilitates an auction between 2:30 PM and 3:00 PM the following day. These auctions, Kamath notes, can result in trades occurring at a significant premium compared to the prevailing market price.
Understanding the Auction Mechanism
To illustrate the impact of these auctions, Kamath provided a concrete example from his own observations. He stated:
“For instance, today Meesho’s auction price was ₹258, while the market price at the time was around ₹226.”
This significant difference underscores how the auction process can lead to higher settlement prices for shares that experienced short delivery. According to Nithin Kamath, this mechanism ensures that trades are settled even when immediate market liquidity is insufficient to cover short positions that have gone awry.
An Opportunity for Existing Shareholders
Kamath also points out a less commonly known aspect of this auction process: an opportunity for existing shareholders. He suggests that individuals holding these IPO stocks in their demat accounts can actively participate in the auction. By offering their shares directly during the auction window, they can potentially exit their positions at a more favorable, higher price.
He elaborated on this point, stating:
“By the way, if you hold these stocks in your demat, you can actually offer your shares directly during this auction window. It’s a great way to exit at a potentially higher price while also helping the exchange settle the trade.”
Nithin Kamath further revealed that Zerodha has implemented a feature to enable its users to participate directly in these auctions from their holdings, simplifying the process for investors. This feature, he implies, empowers retail investors with a tool to navigate complex post-IPO market dynamics more effectively.
In essence, Kamath’s analysis provides valuable insight into the mechanics of post-IPO trading, particularly focusing on the role of short deliveries and the subsequent auction settlement process. He frames this not just as a technicality but as a potential avenue for existing shareholders to realize better exit prices, demonstrating a practical application of market structure knowledge.
📝 About This Content
This article is based on insights shared by Nithin Kamath on LinkedIn.
📅 Originally posted on December 18, 2025 | View original post on LinkedIn →