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Journalism of Courage
Predators Ball unnerves superstitious punters
New Year8217;s eve was the occasion for a spectacular Predators Ball. Top fund managers, financial institutions, bankers, CEOs particularly the emerging software company brigade and those who were part of the charmed circle around a big time stock broker were the invitees. They were linked by a common factor 8212; all of them counted their profits through market operations only in crores of rupees the number varied from tens of crores to hundreds.
The guests assembled for a champagne reception at the Sea Lounge and were then ferried in high security catamarans across the sea to the picturesque resort town of Mandwa where the stock broker owns a sprawling property. The host is the man credited with moving stock prices at will and his clout reminds one of Harshad Mehta in the boom period of 1991-92. In fact, the broker was an acolyte of Mehta and in his market operations has adopted the same style. The modus operandi is to link up with promoters to control achunk of equity and use his financial muscle and his closeness to financial institutions to push up share prices or to place the stock. The difference between this broker and the former Big Bull is his low profile which borders on the reclusive. He rarely gives interviews even though the press as well as industrialists and fund managers make a beeline to his door.
Baazar gossip has it that the food and liquor flowed freely and every other creature comfort was also catered for. Story goes that a highlight of the party was the big bet which had the rich-and-reckless invitees staking Rs one lakh each to predict the Bombay Stock Exchange sensitive index on the last day of the century. The person who guessedclosest apparently walked away with jackpot of close to Rs 1.75 crore. The winner, however, remains a closely guarded secret, what with the Income Tax Department announcing that its sleuths are on the prowl. Mike Milken, the notorious junk bond expert of the US who controlled Drexel, Burnham amp; Lambert, used to throw similar extravaganzas made famous by the book 8211; The Predators Ball.
Closer home, not so old timers nervously remember another equally extravagant bash hosted by three brokers in Mumbai on April 9, 1992 8211; just a few days before a colleague and I filed the first report of the Securities Scam. Then, it was Big Bull Harshad Mehta who was the star of the party and the betting was on the price of a scrip which he pushed to an astounding Rs 10,000. The market simply caved in soon after. Already the superstitious among the punters and speculators are worried about the software stocks triggering a collapse. Their prices have already fallen for three consecutive days and it now appears like a game to findthe last sucker.
So far, the punters have been kept in the game by countering the fall in software stocks with a surge in commodity scrips. The index has remained more-or-less stable with the Reliance share, a heavy weight on the Sensex, shooting up.
At the same time, several big operators in this group have appeared on the idiot box to declare that all is well with the market and the bull run remains strongly in place 8211; the gullible viewer will never know if their fingers are tightly crossed. The debate is no longer about whether the irrational software prices will last but about when they will collapse and who will survive. Some believe that the big operators will ensure at least two more big spurts before prices cave in because they have not completed their exit. But the stage is set for the entry of big suckers.
Infotech funds that are being launched every day. Staid banks and institutions want to get into the business, or to diversify into infotech businesses through some swift deals. On the otherhand, some operator-promoters have already quit management while others cannot hide their losses anymore. One group in the market believes that it is already late. They are worried about being trapped by the circuit filters imposed to curb huge price swings.
In an illiquid market, the circuit filters have worked as a tool for price rigging during a bull run and a trap for sellers when prices collapse. Week after week, stock prices have hit the upper circuit immediately after the market opens with a single trade closing the eight per cent gap and led to skewed price expectations. When prices collapse, a similar downward spiral will prevent investors who are stampeding for the exit, from selling their stock. It is most likely that those trapped at the gate will go bankrupt only because the gates are closed.
The Bombay Stock Exchange BSE has now proposed a sensible reduction in the circuit filters to four percent and a reopening of the market at least twice during the session after a one-hour coolingperiod. This is on the lines of the circuit filters operating at the New York Stock Exchange.
So far, SEBI has been reasonably competent in dealing with the frenzy for software scrips. It has issued several strident warnings, hiked margins and even suspended trading in some scrips to cool the market. It should follow this up by collaborating with the Department of Company Affairs and inspecting the books of some software companies or track the transactions in overheated scrips. This, says market sources will nail promoters and operators who are fixing prices.
One thing that is loud and clear this time is that only the truly reckless and greedy operators are ignoring the warnings. If they are trapped or lose their shirts, they deserve no sympathy at all.
The pity is that there is truly scope for a sensible bull run and it will be a pity if a bunch of reckless operators are allowed to destroy market sentiment through their rapacious greed. The economy is actually looking up and there is enormous value inseveral scrips in diverse industries. With a tough union budget round the corner, it is imperative that the finance minister should work at averting a disaster.
One way would be order a concerted action of the market regulator, the Department of Company Affairs and the revenue agencies to crack down on insider trading and rigging. It will send out a signal that for the first time the government is willing to act in time instead of waiting for a collapse.
Author8217;s email: suchetadalalyahoo.com
