UPDATE 1-Indian midcap shares slump on talk of sale of pledged shares

Last Updated: Mon, Feb 25, 2013 09:00 hrs

* Indian midcaps slump on pledged share concerns

* Pledged shares reach $27.7 bln-MStanley report

* Midcap shares have been hit hard this year (Adds analyst quote, details, background)

MUMBAI, Feb 25 (Reuters) - Indian mid- and small-sized stocks slumped on Monday, with Welspun Corp falling as much as 28 percent and Core Education losing as much as 64.5 percent, on speculation that the pledged shares of these companies were being sold off, dealers said.

Controlling stakeholders of Indian companies often receive loans from financial institutions, pledging their shares as collateral, making these stocks vulnerable to any rumours of liquidations.

The total value of pledged stocks in India reached 1.5 trillion rupees ($27.68 billion) as of the end of December, according to a Morgan Stanley report last week, marking a 5 percent increase from the July-September quarter.

"It looks like a bear attack on stocks which are highly pledged," said Kishor Ostwal, Chairman at CNI Research, a research and advisory firm in Mumbai.

Welded steel pipe maker Welspun Corp Ltd was down 21 percent as of 0835 GMT, compared with a 0.3 percent gain in the broader NSE index.

Shipbuilder ABG Shipyard Ltd and Aanjaneya Lifecare Ltd fell by their daily limit of 20 percent, while Core Education & Technologies Ltd was down 61 percent.

Officials at Aanjaneya Life and Core Education were not immediately available for comment. Welspun was not immediately reachable. ABG Shipyard said it would issue a statement later in the day.

ABG Shipyard chief financial officer and executive director Dhananjay Datar told ET Now TV station the company did not know the reason for the steep falls in its share prices, while saying he was not aware of any selling in pledged shares by controlling stakeholders.

India's midcap shares have been under pressure this year, due to concerns about their earnings as well as persistent speculation of funding issues that are leading to the sell-off of pledged shares.

Shares of Housing Development & Infrastructure Ltd fell 31.2 percent in January on continued market speculation over its debt repayments. ($1 = 54.2000 Indian rupees) (Reporting by Abhishek Vishnoi and Manoj Dharra; Editing by Rafael Nam and Sanjeev Miglani)

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