Sucheta Dalal :Manic Monday
Sucheta Dalal

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Manic Monday  

May 16, 2005


Next week, it will be a year since that Monday morning when stock prices dived so sharply that the BSE Sensex crashed a steep 800 points within the first 25 minutes of trading. Anyone writing up a scorecard of the United Progressive Alliance has only to remember the terror that had gripped the capital market that day, to realise that we have indeed made progress in building investor confidence. But there is no room for complacency. Crumbling infrastructure, decaying cities and power cuts threatening the nation’s financial capital don’t inspire confidence. And the rhetoric of the Left parties, which had triggered Manic Monday, is also getting shriller everyday. The speculated shuffling of key Cabinet portfolios may be just the trigger for another round of uncertainty. Meanwhile, the Securities and Exchange Board of India (SEBI) is planning to mark the anniversary with some regulatory action. Having issued 12 show cause notices in connection with price manipulation or other improper conduct on May 17, SEBI is all set to issue at least two rulings next week.

Pending forever    

That SEBI is ready with two rulings after a 12-month investigation is actually quick action by its standards. The capital market watchdog is weighed down with over 3,000 investigations that are in various stages of inquiry. Of these, as many as 1,200 cases have been heard by the previous chairman or wholetime members, but no orders have been passed. Meanwhile, having lost an important litigation related to the 2001 scam, on the technicality that it did not issue orders in time, the regulator has plugged that window and amended its rules to allow itself to issue orders within a ‘‘reasonable time’’. However, it only needs a clever lawyer to link the ‘‘reasonable time’’ to the case of the big broker who was let off, to get his clients off-the-hook. The SEBI chairman now plans some drastic measures to cut down this humongous backlog. One is to write to companies who want a hearing by the regulator and the second is to have a committee of divisional chiefs to finalise regulatory actions and put it up to the chairman or members for faster clearance.

Tech challenge

After the Pune BPO fraud, another gang of tricksters is cheating investors using Internet-based trading accounts. Several clients of a Gujarat-based franchisee of Indiainfoline have had Rs 24 lakh vanish from their trading accounts through fraud. The local police have already arrested two persons, including a son of the franchisee, in this connection. Criminal cases have been registered and the police have also recovered Rs 9 lakh, a laptop and some mobile phones. The investigation so far suggests that a larger gang may be at work duping investors using Internet trading accounts and have been careless about their passwords and user identification. Sources believe that it is a gang that is knowledgeable about trading technologies. Astonishing, the criminals did not even hack into the accounts, they simply used a trial-and-error system to find careless investors who had not changed their passwords and user identification and continued to operate the original, broker allotted password. An unprotected online trading account is like leaving a home or a safe unlocked. The fact that so many investors do not change passwords is a reflection of the lack of awareness about basic safety precautions that are key to using technology effectively.

Talking up stocks

The latest in the list of Internet message board tricks is the massive attempt across investment websites and Yahoo groups to create excitement in the Vikas Wsp stock. Although the company is in limbo since 2001, postings on the Net talk about a ‘‘listing in two weeks’’. Meanwhile, the company has been investigated and proceeded against for a series of charges including false statements by the directors and widespread financial irregularities and family discord leading to litigation. In August 2004, the Company Law Board asked th government to appoint three directors on the company. In September, SEBI passed two orders against it; one for failure to redress investor grievances and another against its entire board of directors for wrong disclosures made to stock exchanges under the takeover code. Yet, Internet message boards are in a major flutter due to an offer to buy Vikas Wsp shares at Rs 100 each (its face value is Re 1). The posting generated a flood of responses with investors offering to dump the stock at anywhere between Rs 10 to Rs 45. Considering that some notorious operators actively promoted Vikas Wsp during the Ketan Parekh-led bull run, Net speculators must realise that the company will attract extra regulatory scrutiny if it attempts a comeback. Especially since its main product — guar gum — is also the most heavily speculated product on the multi-commodity bourses. Vikas Wsp once traded at a high of Rs 1,550 during the Ketan Parekh-led bull run but tumbled dramatically by 2001 when the financial irregularities came to light.

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-- Sucheta Dalal