BOMBAY, 14 May — The shadow of Harshad Mehta still loomed large when it was overcast once again by the new scamster on the block — Ketan Parekh. Everyone knows that there has been a scam but as of today, what exactly has been the scam, nobody clearly knows. And this is precisely what the attempt is — to know what the recent securities scam is all about, understanding the nuances of it.
The recent scam has been masterminded by the bear cartel in collusion with the stock exchange and SEBI office bearers. This was done by having access to sensitive and confidential information of stock exchange, SEBI, depository participants, bulls and other market related informations.
The net result has been a gain of about Rs.50.00 billion to this bear cartel at the cost of a whopping loss of market capitalization and not to mention the big brunt on investors’ confidence, sidelining a completely good, “market friendly” budget, causing huge losses to mutual funds and UTI where small investors have put in their money. For no fault of theirs, the small investors are now witness to an erosion of their hard earned savings.
One more mischief played by bear cartel is that of shifting the entire blame on the bulls and mainly on Ketan Parekh. Ketan Parekh has been instrumental in the present debacle of the stock market.
If one goes through the modus operandi of Ketan Parekh or KP as he is popularly known in the market circles, it is seen that he has been active mainly in new economy stocks and has been buying these stocks left, right and center. Obviously, one needs huge funds to buy them on delivery basis as also to finance forward trades by way of margins.
Till a certain stage, KP kept buying his favorite stocks with his own funds and also via funds arranged from the corporates, banks and large investors. The real trouble started when the stock market started falling from February 2001 and then he found it difficult to arrange funds to support his buying.
In the process, collateral kept with the banks started depleting and he was unable to make good the margin. The net result was obtaining about Rs.8.00 billion from Madhavapura Mercantile Coop. Bank Ltd. The pay order scam of Bank of India of Rs.1.32 billion is a part of this booty, for which presently he is placed behind bars.
Others who have collated with the scam was, ex-president of BSE, Anand Rathi who sought sensitive informations from Surveillance Dept. on BSE on March 2, 2001. This was examined by SEBI which since then has suspended him and his associate firms from broking business.
The biggest culprit in all this scam has been the bear cartel which has been very active in the market since Jan. 26, 2001, especially after the Gujarat earthquake and has been pressing heavy short sells in expectation of a tough budget. Strangely, the sales has been maximum on BSE and NSE on Feb. 27, Feb. 28, March 1 and March 2, 2001. Pressing short sales is not a crime but it is the method used by this bear cartel which smacks of a con.
The bear cartel has obtained long positions of bulls from the stock exchange and to negate the bullish effect of their purchases, pressed short sales in those scrips, leading to a steep fall in the market.
Later on, these stocks were arranged by the bear cartel by borrowing it from UTI, Stockholding Corporation and other FIIs. When prices fell, the stocks were purchased and delivered back to the lenders.
In the process market capitalization fell by over Rs.2,000 billion. Even UTI and other mutual funds had to bear a cost over Rs.600 billion due to erosion in market value of their portfolios. Ultimately it was the small investor who has lost money as it was his hard earned money which was parked in these funds.
So what happens after a bull and a bear scam? There is no doubt that the bull should definitely be punished but then why should the bear go scot free?