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Journalism of Courage
For a company that has become quite the metaphor for a booming stock markets, broking-to-realty firm Indiabulls now finds itself facing the glare of a harsher spotlight. The country8217;s largest retail broking house is under Sebi8217;s scanner for its role in price manipulation of small-cap or penny stocks, a charge the company denies.
With revenues of Rs 168 crore, the company is a big success story in the country8217;s financial markets. In less than five years, Indiabulls 8212; promoted by three IIT engineers 8212; has notched up a client base of 150,000, profit growth of 100 per cent plus Rs 56 crore in 2004-05 and sky-rocketing net worth Rs 1,300 crore, as of now.
Along the way, the company picked up headlines and two prime mill lands for over Rs 700 crore. The share price also had a dream-run. From a low of Rs 27 on October 21, 2004, the scrip shot up to Rs 271 on July 29, 2005. Currently, the scrip trades at Rs 183.95.
But now, the the ongoing investigations into price rigging in small-cap stocks by market regulator Sebi have indicated that manipulators were rampantly using the trading platforms of Indiabulls, and smaller retail brokers Ranbaxy-promoted Fortis Securities and India Infoline.
When The Indian Express put the issue to Indiabulls, the company was quick to deny involvement in the rigging exercise of its clients.
8216;8216;Our trading platform is used by thousands of investors. Once an investor registers with us as per the norms stipulated by Sebi, investors are free to use our trading platform for buying and selling shares,8217;8217; said Gagan Banga, executive director, Indiabulls.
As per Sebi investigations, manipulators used the trading platform of Indiabulls in two companies IFSL and Prime Property Development Corp to rig up prices. In IFSL8217;s case, the share price was rigged up from Rs 13 to Rs 300 in six months while Prime Property shot up from Rs 10 to Rs 233. The culprits were the company8217;s promoters, directors and some clients.
The regulator has so far asked promoters, directors and clients of 12 companies not to deal in their stocks. It also asked several brokers including Indiabulls and others not to deal in some specific company shares on behalf of the promoters and directors.
The question is, did the company 8212; which started operations with just one office and 15 staffers in 2000 8212; follow the know your client KYC norms?
8216;8216;We8217;re retail brokers with 140 offices across India. Nearly one lakh investors do online business through our system. They are faceless investors. When they register with us, we ask for mandatory details like PAN number, address etc. But later, if they buy shares of shady companies and rig up the prices, what can we do?8217;8217; Banga said.
However, Indiabulls has claimed it has now put restrictions on investors for using its trading platform. 8216;8216;This is a learning process. We have put restrictions on buying shares in Z group or trade-to-trade segment. There are stringent margin and trading limits,8217;8217; Banga said to a question on why the company failed to come out with corrective measures at the right time.
The company is also active in extending loans against shares, another controversial area. 8216;8216;We8217;re strictly following the regulator8217;s norms. Our interest income including loans against shares now work out to 46 per cent of the revenue,8221; Banga said.
A former BSE official said Sebi should revisit broker norms as many have expanded their retail base in the ongoing bull run. A Sebi official said, 8216;8216;As investigation is going on in price rigging in penny stocks, there8217;s nothing to say.8217;8217; Sebi Chairman M Damodaran could not be reached as he is out of the country.
The company8217;s foray into real estate has also raised eyebrows. The company floated two GDR issues and mopped up 210 million Rs 900 crore.
Indiabulls said it8217;s going ahead with its diversification into retail estate in a big way. 8216;8216;Our second GDR issue came after we bid for mill land. Equity business is cyclical in nature. Our diversification is to remove this dependence on one segment alone,8217;8217; Banga said.
According to rating firm Crisil, the group and their private equity investors have made significant investments in its real estate business Rs 720 crore through two real estate subsidiaries. 8216;8216;Indiabulls has also allocated about Rs 200 crore out of the proceeds of the second GDR to fund its minority equity share in future real estate projects. The company also plans to invest Rs 200 crore in new subsidiary formed for personal loans business and Rs 100 crore in the securities brokerage arm, from the fresh infusion through the second GDR,8217;8217; Crisil says.
