All news is good news in a powerful bull market. And when there is none, a battery of people get busy spinning stories and planting them in the media to boost stock prices.
Journalists, who work under pressure to get quick and accurate are hard pressed to distinguish between genuine information, false denials and gross exaggeration, especially when it is sourced from spin-doctors, investment bankers or company insiders. Sometimes they are an integral part of the disinformation circuit. But in a bull market, nobody complains about false news, so long as it makes companies look good and their share prices shoot up.
Stock exchanges have hence taken on the job of verifying news reports for investors by publishing company replies; they also expect that the rumour verification process will dissuade companies from purveying false information.
A look at just the July reports published by the National Stock Exchange (NSE) reveals that over half the news reports have been strongly denied and very few are entirely accurate. The accurate ones include Patel Engineering’s plans to allot preferential shares to Citigroup Venture Capital International and the Videocon deal.
The big newsmaker in July was Reliance Capital. It was named as a possible suitor for IndusInd bank as well as Karnataka Bank. All three entities categorically denied the news reports and Reliance Capital even called them ‘speculative’; but the share prices of all three flared up nevertheless.
A screaming headline on July 13 said Zee Telefilms was talking to Anil Dhirubhai Ambani Enterprises for a direct-to-home venture through Dish TV. Zee Telefilms denied it, calling the report ‘‘purely speculative’’.
On July 6, Reliance Capital was again reported to be seeking an entry into insurance through AMP Sanmar. This time, however, its denial was carefully worded. The company, it said, ‘‘examines various opportunities in different areas from time to time’’ and it wasn’t practical to comment on reports unless ‘‘the plans can be put into action’’.
It had the same response to a July 8, report that it had set up a retail distribution arm called ‘R Trade’ to sell financial products, except that it seems to have replied only around 10 days later.
One understands the huge interest in Anil Ambani’s business plans after the recent split, but when so many reports are denied, the company and the regulator probably ought to get together to track the source of such ‘misinformation’.
The media has been providing fertile planting ground for several favourite speculative sectors. For instance, the July 18, report saying Dhanalaxmi Bank would acquire a strategic partner or be taken over — at the least, it would issue fresh equity. A separate report claimed that IFC Washington and Asian Development Bank (ADB) could invest in the bank. The bank categorically denied both reports, but the scrip danced up anyway.
On July 19, Procter & Gamble was reported to be planning a bonus issue. The company sharply refuted the report saying its accounts for the June year-end were not even ready.
Another piece of misleading ‘‘good news’’ (July 19) said Torrent Pharmaceuticals had discovered a new molecule. The company said its research project was still at a nascent stage and any claim of being at an advanced stage of breakthrough would be inaccurate. Similarly, Elder Pharmaceuticals denied it had won an outsourcing order from Iceland’s Actavis (July 5), saying nothing had been finalised.
Even Noida Toll Bridge Company was not spared. A July 6 report said it had obtained development rights for land acquired from Noida; the company denied any progress in ‘‘procurement of development rights’’. Again, someone probably made money.
Himachal Futuristic Communication Ltd (HFCL) was reported (July 8) to have recast its high cost debts and attracted investment interest from a ‘‘prominent private equity fund’’ that would take a preferential allotment at Rs 30 a share. This controversial scrip was already been moving up in readiness for this news. The company only reported an old public debt-restructuring plan and denied any equity placement proposal. This was clearly an inspired plant.
July 12 saw a newspaper claiming that Videsh Sanchar Nigam Ltd would acquire a domestic telecom company and may ‘‘sell its 17 per cent stake in Tata Teleservices (Maharashtra)’’. VSNL has no stake in Tata Teleservices and denied any acquisition plans. Similarly ITC and Archies both denied the report (July 13) of an ITC takeover. Are these merely shoddy reporting or deliberate mischief?
In what could be genuine mistakes, a July 5 report said Siemens has bagged a Rs 2,240 crore order from Torrent Group. Siemens said the order was worth only Rs 900 crore; Hindalco was reported to be planning a bonus shares when it was going for a stock split; and ITI Limited (July 6) was reported to be planning a sale of surplus land when it had merely sought government permission for a sale.
A host of others are careful denials suggesting that the reports may eventually turn out to be accurate — or not.
Crest Animation Studios (July 7) refused to comment on a report that a strategic investor may pick up stake in the company. While ICICI Bank carefully denied plans to sell its Federal Bank stake, saying nothing had been placed before the board for its approval.
Similarly, Dabur India said its board had ‘‘yet to consider’’ any proposal about the reported plans to acquire Amrutanjan. Agro Dutch Industries (July 1) was reported to be offering the German investment institution — DEG. It said, it was only negotiating a forex borrowing. And Pudumjee Pulp & Paper, thought it premature to respond to a news report that it planned to sell land at Pune.
Tata Teleservices (Maharashtra) said South Korea Telecom was only one of the suitors seeking 26 per cent of its equity and no firm decision had been made. And HDFC Bank responded to a July 4 report about its plan to float a non-banking finance company (NBFC), saying it explores such proposals and opportunities from time to time, but needed ‘‘clarity on the regulatory and business framework’’.
It was reported that Sterlite Industries would to hand over the management control of India Foils Ltd to a strategic partner. But Sterlite said it had no shares in India Foils (an affiliate company) and nothing to do with the decision. India Foils issued a denial, but also admitted to continuously evaluating various strategic alternatives to enhance stakeholder value.
Another report claimed that Mahindra & Mahindra (M&M) planned to acquire a 51 per cent in Ramkrishna Forgings through a preferential share issue; the latter denied it immediately. But M&M guardedly talked about a policy not to ‘‘comment on speculative reports’’.
What do these denials mean? Most journalists will confirm that a ‘‘no comment’’ is usually construed as an affirmative. And some reports may be slightly inaccurate or premature because the deals are not finalised. Yet, the large number of denials in a short 20 day segment, suggest that investors need to be careful and regulators more alert to media misuse.
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