Burger King shares fall with a thud — here’s a take on the swing from one circuit to another

• The shares fell and how! They were locked in a 20% lower circuit on Thursday after a rip-roaring rally where the stock tripled in just three days since its listing.
• When the market reopened trades in Burger King stock at 2 pm, Business Insider learns that 15 million shares were dumped at once in the market and there were not enough buyers for that kind of volume.
• Here’s an explainer on what made the stock swing so wildly from one circuit to another.

The dream run for the recently listed quick restaurant service chain Burger King India took a breather today. The shares were locked in a 20% lower circuit on Thursday after hitting an all-time high of ₹214 per share during the early trading hours — clocking nearly 265% gains to issue price since December 14.

The record rally since its listing this week has pushed its market cap beyond ₹6,844 crore, surpassing its rival Westlife Development (McDonald’s operator in India), which has a market cap of ₹6,790 crore.

Just as the sharp rally in the last three days was surprising, the fall today has come as a shock for many small investors who were lured by the record surge in the stock.

Here’s an explainer on what happened in the market:

What is the upper and lower circuit?

Circuits are the limits set by the stock-exchanges for a stock to cap its movement in extreme cases — either a rally upwards or a massive fall downwards. This protects investors’ wealth and ensures an unwanted surprise moment.

A stock hits an upper circuit when there are only buyers and no sellers. The upper circuit for a stock is the maximum price it is allowed to move up to. Once that limit is breached, trading is not allowed. This does not apply for stocks that are also traded in the futures and options segment.

For most stocks the circuit is set at 20%. This limit can be revised by the exchanges.

In the case of Burger King, the limit was set at 20%, and after surging to ₹214 during the morning trade, the stock was locked in an upper circuit. However, when the exchanges allowed trading to restart in the afternoon session, the stock fell almost 20% and was locked again, this time in a lower circuit at 2:10 pm.

A lower circuit is the minimum price to which a stock can fall to in a single trading day. When a stock hits the lower circuit it means that there are only sellers and not buyers at that point.

What has been the reason behind the rally?

With a whopping subscription of 157 times, Burger King India was one of the most popular IPO this year. Most brokerages have recommended a ‘subscribe’ due to its attractive valuations, growing market share and future outlook. With COVID-19 vaccines making progress, restaurants have started opening up again, boosting the sentiment.

The shares of Burger King India were locked in a 20% upper circuit for three days in a row, nearly taking its gains to 265% over the issue price, just four days after listing.

The reason behind the tumble today

However, after three days of a rip-roaring rally, some investors (may be even just one) may have decided to take some profit home. Business Insider reached out to market watchers for insight on what may have played out but they refused to share any comment on record.

We have learnt that when the market reopened trades in Burger King stock at 2 pm, 15 million shares were dumped at once in the market and there were not enough buyers for that kind of volume. And that led to the sharp fall where the shares breached the lower circuit.

What next? ⁠— ‘More upside ahead — stay invested’

According to analysts, there is ample scope for investors in Burger King, and they see room for more upside over the next few months.

Keshav Lahoti Associate Equity Analyst, Angel Broking post the listing of the IPO said, “Such listing was in-line with our expectation as the company issue was priced at a significant discount compared to listed peers such as Jubilant FoodWorks (Domino’s Pizza) and Westlife Development (McDonald). Short term investors can book profit. We advise long term investors to stay invested in the company as there is ample scope available for the company to increase its business in India.”

IIFL Securities, Sanjiv Bhasin believes that the stock can still rise 30-40% more in the next few months. However, he also recommends caution, given the frothiness in the broader market.

“There is a lot of left out feeling, and there is a lot of froth in small-caps now. However, Burger King is a quality midcap that can gain 30-40% in 3-4 months,” Bhasin added.

SEE ALSO: Burger King's IPO investors tripled their money in three days

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