Hero MotoCorp, a prominent 2-wheeler manufacturer, experienced a significant drop of over 4% in share price during Tuesday's trading session. The decline came after the news broke that the ED had conducted raids at various locations in Delhi & Gurugram as part of a money laundering investigation involving company's Executive Chairman, Pawan Munjal.
Earlier in the day, stock grown over 2-year high of Rs 3,244, but unfortunately, it later erased those gains and reached a low of Rs 3,032.25 on NSE.
The sharp selling pressure was evident as trading volumes exceeded 2 million shares, significantly higher than the six-month daily average volume of 615,362 shares. This sudden surge in volume also triggered bearish bets in the August futures contract, with open interest increasing by a substantial 17% to 4.2 million shares, indicating a buildup of short positions.
The investigation originates from a complaint filed by DRI against an individual believed to be close to Pawan Munjal. The person was previously under investigation for carrying undeclared foreign currency.
This is not the first scrutiny, the company has faced such things in the past as well. In June, the Corporate Affairs Ministry initiated an investigation into alleged corporate governance issues at Hero MotoCorp. In March of last year, the income tax department conducted raids on the company's premises due to alleged tax evasion, even covering Pawan Munjal's residence during the searches. CBDT, the department's parent organization, revealed alleged illegal business expenses of over Rs 800 crore without explicitly naming the company.
Following the resurfacing of raid-related news, the sentiment on Dalal Street dampened, causing the stock to snap its two-day winning streak.
The substantial fall in the stock led to a decline in premiums across out-of-the-money call options. The premiums of deep out-of-the-money call options plunged by more than 50%. Conversely, the premiums of out-of-the-money put options more than doubled, with open interest increasing in the Rs 3,000 and Rs 2,900 strike prices.
Investors & market participants are now closely monitoring the developments in investigation to assess the potential impact on Hero MotoCorp and its future performance on stock market. The uncertainties surrounding the probe have brought an air of caution, leading to a shift in market sentiment and investor behavior.