Manipulation in software scrips continues

Other software companies with low equity base like Satyam like Pentafour Software, Infosys and NIIT are not lagging behind. Roguetraders are using software shares for rampant speculation. BSE governing board also came to the help of speculators by shifting Satyam, Pentafour and NIIT to the A8217; group. This means traders will get the carry-forward facility which is not available in other groups. With the exchanges turning a blind eye towardsthe share manipulation the software bubble is likely to burst soon.

Research papers dished out by foreign broking firms and domestic punters talk about 50-60 per cent growth in earnings for software companies. They say that software shares are fundamentally strong and these companies will show strong growth in the next five years. 8220;Then why these shares shot up to dizzy heights two months ago and later crashed? Speculators are using these shares for short gains,8221; said a broker. Satyam crashed from Rs 613 to Rs 345.75 in the recent stock scam, Pentafour Software from Rs 1,115 to Rs 530.25, Infosys from Rs 2,624 to Rs 2,160, NIIT Rs 1,764 to Rs 1,304.50.

The rigging exercise is not restricted tosoftware shares alone. ITC is another favourite counter of speculators. They push up and down these share prices on a daily basis and make profits. Speculators select three or four scrips for this exercise and they act in concert. 8220;There is no small investor or any market fundamentals involved. They are least bothered whether small investors return to the market or not. Stock exchanges have ignored these developments and rarely bothered to impose extra margin or curbs to stop this market manipulation,8221; market sources said.

It is not uncommon to see only software shares going up on one day and plunging the very next day. It is a common practice to shift the positions from exchange to exchange BSE to NSE and vice versa and from broker to broker in such scrips. The idea is to circumvent circuit breakers and margin requirements. If Harshad Mehta8217;s brokers were rigging up the prices of BPL, Videocon and Sterlite, a host of brokers were doing the similar thing in software shares. The BSE board8217;s decision topromote some software shares to the A8217; group continues to perplex investors. The exchange normally considers parameters like equity capital, floating stocks, past trading volume and performance of the company. When Satyam and Pentafour were shifted to the A group last year, they were not really popular shares. Now they are contributing maximum to the badla business and daily volume of the BSE.

The exit of foreign institutional investors FIIs who are major holders of software shares compounded the problems and brought about a crisis situation on the stock markets, threatening the solvency and integrity of the financial system itself. This excessive speculation has led to high volatility despite automation and sophisticated systems on the exchanges, making them legalised casinos. With the market being dominated by speculators and such practices, investors just cannot be expected to assess and manage risk in these conditions.