JINDAL Worldwide is a small company listed on the BSE. Its average monthly turnover doesn’t exceed 1,500 shares. But the company’s stock made a whopping gain of 157 per cent (from Rs 11 to Rs 28.30) in a month. Dalal Street is once again brimming with excitement. Bulls are at their best again, pushing up stocks to new levels. Sensex has risen by nearly 750 points in two months. Investors’ wealth has zoomed, bringing smiles back on the faces of investors. But watch out, there are hundreds of companies like Jindal Worldwide on Dalal Street. The message: It’s time to be cautious. Though the market has not entered the danger zone, it’s moving in that direction. Take, for example, Bhansali Engineering. Its stock shot up by a whopping 155 per cent to Rs 35.90 in a month. The abnormal rise in stocks is not restricted to second-rung counters alone. Even A group shares like Alstom, Lupin, SSI, United Phosphorus, Indian Rayon and Saw Pipes have shot up by over 50-60 per cent on the bourses. “The market is witnessing a recovery phase. Certainly there’s a firm trend in stock prices. But manipulators are taking advantage of it. This is due to lack of proper vigilance and monitoring by the regulators,” said an analyst. Some firms which are making waves on Dalal Street are paper firms with no project or office. If Dalal Street operators are to be believed, these firms are functioning for market operations. The broker-promoter nexus is playing a dangerous game for investors. After the 2000-01 boom and crash, this is for the first time the market is showing signs of a bull run. The two years have been bad for the market. “If you look at the boom periods in the market in the last 15 years, you can see it was artificially created by manipulators with help of illegal diversion of bank funds and rigging. Retail investors have always lost money,” said C. Rodrigues, an investor. Says Sandeep Presswala, head (retail business) at IL&FS Investsmart, “Indian investors have been averse to equities as an asset class. For the passive equity investors the last decade has not been too encouraging. The broad-based equity market returns have almost been nil.” This time also, the market is showing unmistakable signs of manipulation: rigging, insider trading and circular trading are once again visible. Manipulators have already entered the scene but are cautious and their operations are camouflaged in bull buying in a recovery phase. PLAIN RIGGING: This is rampant in small stocks in B1 and B2 groups. Most of them are below Rs 10 and Rs 15. Some stocks which were quoting at Re 1 and 50 paise have now crossed Rs 10. You can see some stocks like Transgene Biotek hitting the upper circuit in thin volumes day after day. The strategy of riggers: When prices rise to a reasonable level, they (riggers) will offload the stocks to retail investors. Retail investors are slowly getting attracted to the market. With over 6,000 firms listed on exchanges, it’s next impossible to track the movements of all the stocks. “But regulators are sitting quiet. They will act only when a problem arises. They should be more more pro-active,” said a former BSE official. One way to jack up the prices is circular trading. A group of 6-7 operators will buy and sell stocks in tandem, in huge quantities. “Simultaneously, these riggers are floating rumours about the companies they’ve targeted. They will spread rumours like the company bagging big orders, big expansion plans, tie-ups, etc. This happened in the 2000-01 boom period. But stocks fell by up to 90% in the same year,” said stock broker Pawan Dharnidharka. Besides this, rampant insider trading is also taking place. Though it’s difficult to prove this menace, the sudden rise in prices and volumes of some of the stocks before the announcement of crucial decisions is inexplicable. For example, there was a rise in IOC stocks before the bonus issue was announced, L&T stock and volumes moved up before the deal with the Birlas. All this coincided with the ongoing bull run on the bourses. According to insiders, promoters of few companies are indulging in massive insider trading using privileged information about their companies. This is more common in bull phases. Investors need to be careful while going after stocks which are showing huge volumes and sudden price jumps. The current rally is based on factors like good monsoon, rise in foreign fund inflows, pick-up in demand and good corporate performance. But this is the time when manipulators get active. Sensex may rise further but simultaneously riggers will also step up their operations. Be on your guard.
