Sucheta Dalal :How operators manipulated the Wipro scrip
Sucheta Dalal

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How operators manipulated the Wipro scrip  

September 11, 2002

On September 9, the Wipro scrip alone attracted as much attention as the entire bunch of tumbling public sector unit stocks. The PSUs at least had a reason to invite such frenetic trading and for going into a free fall.

After all, a couple of days earlier, the Cabinet Committee on Divestment had postponed the divestment of Bharat Petroleum and Hindustan Petroleum by three months.

The decision signaled that politicians who are against PSU divestment have gained an upper hand and Arun Shourie, our most capable and honest Union minister, seems to be on the losing side.

The negative signals sent out by the CCD decision caused a wave of selling in all PSU stocks. But, what about Wipro? This stock was as much in the limelight on account of brazen and rampant price manipulation. Here is how the scrip moved.

Monday morning saw Wipro opening at Rs 1,221 - just a tad higher than Friday's closing of Rs 1,211.80. It then began an amazing upward climb to touch Rs 1,519.90 on rumours that the company had won large overseas orders.

From this peak price, it went into a deep dive at around 3.15 p.m. and dropped to Rs 1,370 in 15 minutes of trading. The official closing price of Rs 1,428.95 - which shows an 18 per cent increase over the previous day, is in fact an average of the last half hour of trading.

This rampant manipulation was accompanied by astounding volumes. Wipro's volume at 2,854,067 shares was the highest single day volume in the entire year!

By 6.39 p.m., the Wipro management reacted quickly and put an end to the speculation by announcing that the rumours about its large orders were false. Some market observers have sniped at Wipro for not denying the rumours during trading hours, but that is completely unfair.

In fact, the Wipro management should be commended for its quick public announcement. It is impossible to expect any management to react to fanciful rumours any faster. In fact, most corporate managements are reluctant to deny positive rumours and are usually quite happy to see their stock 'in play.'

More often than not, the management itself is hand-in-glove with price manipulators and also makes a neat packet in the process. Wipro's action shows that it had nothing to do with the massive volumes drummed up by operators and that it is certainly not amused by it.

This is not the first time that the Wipro stock has been manipulated; Monday's operation was merely more brazen. Wipro is an ideal stock for manipulation because of its low floating stock and its inclusion in the National Stock Exchange's Nifty index.

Wipro's non-promoter holding is under 16 per cent and its actual public holding is under 7 per cent. Yet, it is included in the National Stock Exchange's 50-share S&P CNX Nifty and has a large weightage in the index.

Monday's trading also demonstrated how much Wipro can influence this popular stock index.

The BSE sensitive index - the Sensex - which does not include Wipro, dropped a steep 51.64 points on Monday under a wave of selling, especially of PSU stocks. But if you have tracked the Nifty, you would have believed the market has not even reacted to the bad news on divestment.

The Nifty in fact closed the day with a 3.35-point rise to up 998.55. In fact, it was up 7 points when Wipro's price was at its highest. Nifty moved 20 points during the day, from its day's low of 985.25 to its highest level of just under 1006 mainly under the influence of the Wipro price movement.

How much of a market trend did Nifty reflect that day? Although a hefty 503 scrip prices declined on Monday, while half that number (202) increased, and the price of 40 scrips remained unchanged, the index itself shows a slight increase.

This was proved again on Wednesday when the manipulators were not able to rig up Wipro and it dropped a sharp 7.58 per cent to Rs 1,328 at 3.20 p.m. and then recovered slightly to close the day at Rs 1,342 (the official closing which is the average of the last half hour trading was not available at the time of writing).

The Sensex and the Nifty on Wednesday, thus, moved in opposite directions. While the Sensex was up 36 points, the Nifty was marginally in negative territory for most of the day and then closed almost at the same level as Monday.

Clearly, a single stock is skewing the Nifty (whose 50 stocks ought to make it more broad-based than the Sensex) no longer seems to reflect market trends.

Since the NSE volumes are nearly twice those of the BSE and the Wipro stock is ideally placed for rigging, manipulators are having a field day fooling around with the price.

For some strange reason, neither the stock exchanges nor the Securities and Exchange Board of India (Sebi) seem capable of cutting through the punters' trick of drumming up incredibly large volumes and tracing the activity back to the one operator and his cohorts who are openly rumored to be behind the manipulation.

In fact, such large-scale manipulation only succeeds when day-traders jump into the fray and add to the volumes and the day-traders can only be lured by information that a big, high operator is ramping up prices.

Some newspapers would like to sanitize the quick pump-and-dump operations of this group as 'scalping.' All it means is that a larger number of small speculators, who together account for the large trading volumes recorded on Indian bourses, are going to be hit and hurt a lot quicker - in fact almost on a daily basis.

It is a development that ought to worry the regulator and the fund managers. If such manipulation is allowed to continue unchecked it will drive away the small speculators and shrink market liquidity.

Also, given the recent spate of bad news (the setback to PSU divestment and the half-baked bailout proposal for the Unit Trust of India), it would also lead to erosion in stock prices.

None of this is good for the Indian market, but unfortunately, neither the stock exchanges not the regulator seems capable of investigating the manipulation and tracing it back to specific operators.

If the bourses are unable to investigate the hammering of Wipro during the last 15 minutes of trading on Monday as well as Wednesday, then Indian investors can never depend on secondary market regulation.

-- Sucheta Dalal