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COVER STORY: THE STOCK SCAM; SMALL INVESTORS
Victims Of The Crash
With stock markets losing more than Rs 4,000 crore a day
in March, the small investor was left holding shares that were worth less
than a fifth of what he paid for them.
By V. Shankar Aiyar with Rohit Saran
If
Kerry Packer were to sit up and do his arithmetic he would discover that
the Rs 1,040 crore he invested last year for a 9 per cent stake in the
hugely hyped Himachal Futuristic Communications Ltd (HFCL) was now worth
a little over Rs 150 crore-a dip of 85 per cent. The Australian billionaire
may have a war chest to pack the loss away. Not the thousands of small
Indian investors many of whom lost their lifetime's savings and trust
on the stock markets in the past few weeks.
Thousands of investors across the country, who
had pleaded with their brokers to get them HFCL shares, find themselves
short-changed mercilessly by a volatile cocktail of greed and corruption.
The mayhem that destroyed wealth worth Rs 1,15,889 crore on the markets
in four weeks of March (more than Rs 4,000 crore a day) has already claimed
at least six lives, sent hundreds to the brink of bankruptcy and shattered
thousands of dreams. Says Ambuj Kapoor, a small shopkeeper from Lucknow:
"All my lifetime's savings are gone. I don't know how to feed my
family."
The crash seems as fictional as the build-up
was. Take the Zee Telefilms scrip, for instance. Pramod Shah, a Mumbai-based
bank officer, bought 60 shares at its peak price of Rs 1,630 just before
last year's budget. "For the same money (about Rs 97,800) last week
I could have bought 800 shares." Most of the high-flying infotech-communication-entertainment
(ICE) shares have had an equally catastrophic fall. In hindsight, the
pre-crash craze for stocks appears nothing short of madness. Samir Dholakia
of Mumbai's Balance Equity had his clients demanding stocks of Wipro at
Rs 9,000 a share last year. Last week, it was difficult to sell the same
shares at Rs 1,400. A few months ago there were only buyers for Cyberspace
shares at Rs 1,480. Today there are only sellers at Rs 14.95.
Shaila Rane of Navi Mumbai remembers collecting
cash from housewives and investing it for them with sub-brokers in the
BADLA market. "On a good day I would carry up to Rs 1 lakh. People
cajoled me to take their money and not their neighbours'." In Bangalore,
prices were being quoted in number of Infosys shares rather than in rupees.
A colour television worth Rs 20,000, for instance, was three Infosys shares.
Says V.R. Srinivasan, a Mumbai-based merchant banker: "It was as
if the share and not the rupee was the currency of the day."
Suddenly, however, stocks turned to paper and
the rupee was currency again. Shocked and frustrated, small investors
are blaming the media, analysts and the financial system for their plight.
Laments Pradeep Sheth, a small businessman in Mumbai who lost over Rs
5 lakh in the crash: "The Government kept singing about the information
technology revolution. The business papers wrote glowing copies and analysts
on business channels on television doled out advice on which shares to
invest in. The hype was all around and looked real."
Nirav Shah, another businessman who also lost
Rs 5 lakh in the chaos, is more direct. "Why isn't the SEBI (Securities
and Exchange Board of India) probing the role of analysts writing glowing
reports for top brokerage firms and propounding the boom theory on the
CNBC channel?" Girish Patel, who runs a photography business in Ahmedabad,
blames the unchecked broker-company nexus for swindling him of his hard
earned Rs 2.4 lakh. The one question that investors really cared about-should
they sell out, stay put or buy? - could not be answered by anyone. Till
the market came crashing down. Dhiraj Nagpal, a 29-year-old Delhi-based
engineer who trades in electrical goods, went against his father's advice
and invested in high-price shares like Infosys and HFCL.
What made the lure of stock market irresistible
was the narrowing of saving options for the small investors. Explains
S.L. Rao, senior economist and former chairman of the Central Electricity
Regulatory Commission: "With interest rates on small savings falling
and scope of tax exemptions narrowing, more and more small investors found
the capital markets, especially mutual funds, a relatively rewarding and
safe investment. But the large-scale rigging of the market, apparently
in collusion with the regulatory authorities, has shaken the confidence
of all those investors who opted for mutual funds for stable investments."
So while erstwhile saving options are being made less and less attractive,
the newer options that were to become attractive are open to manipulation.
Points out Giriraj Prakash, a Delhi-based retired bureaucrat: "Returns
from bank deposits are falling and are taxable, savings in provident funds
and postal deposits are being discouraged and RBI bonds carry an interest
rate of only 8.5 per cent. The Government provides incentives for investment
in mutual funds, but there is nothing to protect them from rigging."
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