Last week, markets regulator SEBI reached the conclusion of an investigation into a brazen scandal that had happened back in January. It banned a huge number—230— of individuals from participating in the security markets, probably a record for such action.
The case involved Chennai-based film exhibitor Pyramid Saimira, and a rumour that led to a temporary jump in its stock price, which was used by an operator to offload his holdings. It was supported by an expertly-forged letter from SEBI and a fake company secretary who was giving statements to the press.
According to the conclusions reached by SEBI, the conspirators included a senior journalist of a leading business daily and an executive from a well-known financial public relations agency.
Such rumour-mongering is routine in the stock markets and the only thing that makes this case unusual is the forgery of an order from SEBI. The conspirators seemed to have been completely oblivious to the fact the forgery of a letter from a government department would be taken seriously by the authorities.
A good proportion of Indian market participants exist in such a mental frame of reference. In this world, when a stock moves up or down, the most important piece of knowledge is not anything about the stock or the company, but who is behind the move and how far do they plan to take it.
Does this world exist? It most certainly does, at least outside the 100 or so widely traded liquid stocks that are difficult to manipulate. That means most listed stocks.
If you are not stupid enough to forge a sarkari order and distribute the forgery to all and sundry, then the chance of actually getting caught are negligible. The basic problem is that our markets are wide without being deep. The bulk of the manipulated stocks are thinly traded and therefore it’s trivially easy to manipulate them.
On the Internet and in old media, people either believe in stories or they move on—no one seems interested in refuting anything. In most cases, the impact of the stories is short-lived. The thing to is to either ignore the rumours or, one could say cynically, float them yourself.
Dhirendra Kumar is Managing director, Value Research