Sucheta Dalal :The new bulls (4 August 2002)
Sucheta Dalal

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The new bulls (4 August 2002)  

Ketan Parekh’s exit has seen the quiet emergence of some new bulls in the Indian capital market. Last week however, these operators sent the market into a tizzy with rumours that they were facing payment problems and in danger of closing down. The new bulls are a curious set.

One is a market veteran who has suddenly attracted immense curiosity by turning aggressively bullish and high profile.

Although he has been among the highest taxpayers in the country and has a large investment portfolio, he was known as a quintessential bear and was zealously low profile earlier.

Suddenly he seemed to seek the limelight—he wrote columns, plugged his favourite scrips on television and threw lavish parties. The payment problem seemed a logical next step.

However, latest reports suggest that he has weathered the storm and although he may have lost money is in no danger of defaulting. Two other bulls are the heirs of low profile brokers who passed away last year. The first is the sibling of a broker who was under investigation for Scam 2000. The other is the son of an operator who was part of a broking group known for its smart market moves.

Both are fairly new to high octane speculation and seem to have been caught up in some impulsive speculative moves. The third is a bearded floor trader who vaulted from nowhere to fill the vacuum caused by Ketan Parekh’s exit. The next few weeks will say whether these new bulls will thunder back into the speculative ring or have been badly mauled in a dangerous new game.

Monopoly blues

A couple of media reports over the last week suggest a not-so-subtle campaign against the National Stock Exchange’s (NSE) near monopoly in the derivatives trading segment. These reports seek a cap on trading limits per broker because it could otherwise lead to dangerous consequences.

It is indeed true that derivatives trading, which allows a lot of leverage for individuals to speculate can spin out of control - but the campaign seems aimed at curbing the growth of NSE’s Futures & Options trading (F&O) rather than real worry about margins or limits. F&O is still a nascent and little understood business in India, and has a long way to go before it turns into a dangerous speculative tool.

It also provides a safe hedging mechanism to large traders. It may be recalled that when the Bombay Stock Exchange (BSE) was lobbying vociferously for re-introduction of badla trading, the NSE had campaigned for starting derivatives in India.

Finally, both the exchanges opened up for F&O trading on the same day—in fact the BSE started a day earlier. If the NSE now has a near monopoly, the BSE needs to worry about what it did wrong with its products, rather than to try and cap the NSE’s booming business.

After all, there is no guarantee that business will necessarily shift from the NSE to the BSE. It could go underground and turn into unofficial trades with existing F&O brokers.

Vanishing Companies

Maybe it is the magnitude of the global accounting scandals that are making the difference, but suddenly one finds that public representatives on corporate boards and the judiciary has turned significantly more alert to issues relating to bad corporate practices. Midas Touch Investors Association of Kanpur has been fighting since 1998 to bring to justice promoters who vanished with over Rs 10,000 crore of investors money’.

Its earlier public interest litigation (PIL) at the Allahabad High Court was discharged when the regulators’ submitted an action plan to deal with unscrupulous promoters. But nothing happened.

Midas filed a second PIL in February 2000, where it demanded attachment of properties of all 229 companies identified by the regulators as having vanished. When the matter came up for hearing recently, the court seem very inclined to go into details and probably nail the guilty.

Tailpiece: While on the oldest stock exchange in the country, a quiet controversy has apparently arisen over writing off Rs 67 lakh from its accounts.

Sources close to the bourse say that a couple of public directors and some new broker directors are reluctant to sign the accounts unless they are convinced about the need for such a write-off.

These sources say that the amount pertains to problems in the BSE clearing house, which has been suppressed for several years now. Clearly, the global accounting scandals are having a positive impact on Indian boards too.

-- Sucheta Dalal