Meesho short-selling shares under auction: Nithin Kamath explains how investors can participate and earn profit

Fresh IPOs racing higher for days after listing may not just be about demand and hype. According to Zerodha founder and CEO Nithin Kamath, a less visible technical factor is increasingly driving these sharp post-listing moves and punishing traders who bet against them.

In a detailed post on X, Kamath said he has noticed that many recent IPOs continue to rise for two to three sessions after debut, even when valuations appear stretched. While limited free float and strong demand are obvious reasons, he pointed to settlement mechanics and short delivery auctions as a critical but underappreciated driver.

Kamath explained that many traders attempt to short newly listed stocks intraday, expecting a quick correction after a strong listing. However, when such stocks hit the upper circuit, these traders are unable to square off their positions due to a lack of sellers. This results in what is known as a short delivery, where the seller fails to deliver shares to the exchange on settlement day.

When short delivery occurs, exchanges conduct a special auction session the next trading day, typically between 2:30 pm and 3:00 pm, to procure shares and complete settlement. These auctions are restricted in nature. Only existing demat holdings can be offered for sale, fresh buying is not allowed, and the exchange itself acts as the buyer. Circuit limits in the auction market are capped at 20% over the previous close.

Kamath noted that prices discovered during these auctions can be significantly higher than prevailing market prices, effectively forcing short sellers to buy back shares at a premium. He cited Meesho as a recent example, where shares in the auction were cleared at around Rs 258, well above the market price of roughly Rs 226 at the time.

The Zerodha founder also highlighted an opportunity for long-term investors. Shareholders who already hold stock in their demat accounts can participate in these auctions and potentially exit at higher prices than those available in the regular market, while simultaneously helping the exchange settle failed trades. Zerodha, he said, has enabled this feature directly on its platform.

To participate in the auction market from Zerodha, follow these steps:

• Login to Kite.
• Click on Bids.
• Click on Auctions.
• Hover over the share and click on Sell.
• Click on Sell at auction, enter the quantity and the price and click on Sell.