I’ve been noticing many recent IPOs continue running up for 2-3 days after listing. While demand and supply factors (limited free float) are obvious reasons, there may also be technical factors at play.

Let me explain the technical factor.

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.

When this happens, the exchange conducts an auction the next day between 2:30 PM and 3:00 PM to settle the trade. These auctions can happen at a significant premium to the market price.

For instance, today Meesho’s auction price was ₹258, while the market price at the time was around ₹226. 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. We’ve enabled this on Zerodha —you can participate directly from your holdings.

More details on how to participate in auction here.

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