Victims Of The Crash Small investors like Girish Patel of Ahmedabad have lost much of their life's savings in the stock market crash. A profile of some middle-class investors who burnt their fingers.

Villains Of The Crash SEBI Chairman D.R. Mehta along with bankers, and brokers must share the responsibility for allowing yet another scam by their acts of commission, and omission.

What's Next For The Economy?
For the third time since 1997, a combination of sliding stock markets, political instability, and global slowdown threatens to turn the hopes of an economic take-off into despair.

Numbed By Disgrace
The BJP, still in shock, begins life after the Tehelka expose with a new president and a combination of hope and bluster. A swot analysis.

"I'd choose Musharraf"
Former Pakistan prime minister Benazir Bhutto talks about her relations with her country's politicians, Indo-Pak relations and Kashmir in an interview to Aaj Tak.

Official Obstacle
Chhattisgarh Chief Minister Ajit Jogi eggs on workers to go on a strike that is adversely affecting production, and profits.

Fire Fighting
As the Tehelka controversy slows the defence deals, the Government takes steps to revamp the set-up and streamline the weapon procurement system.

COVER STORY: THE STOCK SCAM; MODUS OPERANDI

Lack Of Uniformity

While SEBI and the stock exchanges look at individual broker positions in each exchange and scrip, the truth is that punters operate independently and a band of followers apes their actions, shifting positions across 23 exchanges, helped by the lack of uniform settlement. Says L.C. Gupta, former member of the SEBI Board: "This could have been prevented had SEBI initiated basic reforms like rolling settlement and adoption of a uniform settlement. Former SEBI chief G.V. Ramakrishna believes scams occur because of the absence of real-time, online surveillance. The surveillance, he says, should be both broker and scrip-specific, even if it is limited to only the top 10 scrips and 10 brokers. "It is important that the market knows they are being watched and that you will come down heavily." Clearly this wasn't done. Even today, bull operators can ramp-up scrips without ringing any alarms in the regulatory mechanism. Very simply the hounds in the market had outpaced the regulators.

Helping the hounds along the way were banks-private and cooperative- who lent money and wrote out guarantees to brokers. The RBI wasn't too concerned either, even though three private-sector banks had an exposure 10 times that of nationalised banks. While the nationalised banks had learnt their lessons in 1992, the parvenus had not. It didn't matter to banks that the guarantees were partially backed by stocks whose value could plunge anytime. Just as it didn't matter to Global Trust Bank (GTB) that it was extending credit to Parekh who held a substantial stake in the bank. Somaiya believes that the "probe into who rigged the GTB shares prior to its merger with UTI Bank may provide a clue to the quid pro quo".

But the March 2 and March 12 slumps forced the RBI to sit up and rap the errant banks sharply. GTB was forced to call in its funds, so were the other banks. A former SEBI official points out that it isn't just banks. "In the case of many rigged scrips the funding came through a web of financial companies belonging to the promoters," he says. "Some organised private placements to rig shares. It would be illustrative to see what HFCL did with the Rs 1,000-odd crore it raised from Kerry Packer. The Income Tax Department could probe the end use." Funding though isn't always domestic.

A senior RBI official points out that many FIIs are now playing broker to corporates ramping up or hammering shares. The route is either through participatory notes wherein an NRI or OCB can deposit a sum and invest in shares through the FII or through sub-accounts. "Clearly many are simply fronting for corporates, for a fee." What's more they seem to be actively involved in speculative runs, though they are supposed to take a long-term view.

The regulators suspected this all along but nobody wanted to rock the boat. Neither SEBI nor the RBI, burdened by the double role of being owner and regulator of banks. While SEBI doesn't carry such baggage, it has often complained of lack of teeth. Mehta's critics don't quite agree it is an issue of power. Says a merchant banker: "Why aren't they doing what is in their power? Nothing moves in SEBI without a committee." Like the Finance Ministry, it is also obsessed with volumes and turnover. Says Gupta: "SEBI seems to be taking pride in large volumes even if delivery is minimal. High volumes breed speculation and invariably lead to manipulation. Unless we understand this, we cannot expect a safe market."

Again for some strange reason, neither the Finance Ministry nor the regulators are overly worried about safety when the market is rising. Since January 2000, the Sensex shot up twice by over 300 points and thrice by over 200 points. No alarms were raised. It has slid 13 times by over 200 points during the same period without any ruckus. If it hadn't been for the budget, the March 2 slide of 176 points would have gone largely unnoticed. In that sense, Finance Minister Yashwant Sinha has delivered a truly investor-friendly budget or the scam would have continued.

Yet, despite a series of scams, the regulator wakes up only when one actually takes place. In the past three weeks, SEBI has done more cleansing than it did in a year. Says Prithvi Haldea of Prime Database: "It is unfortunate that we require scams to take corrective action. We continue to be in a reactive mode, not proactive mode. What's more with the number of scams rising, earlier ones get swept under. There is no follow-up and no exemplary action."

It would interest the regulators to know that the name Gekko was inspired by the lizard that feeds on insects and sheds its tail when trapped. This time round perhaps the regulators could try and trap more than just the tail. For, as Vimal Bhandari, executive director, IL&FS, says, "Nobody has the right to dent the robustness of the market. Wrongdoing, if unpunished, creates cynicism." Something India can ill-afford if it wants to grow at 9 per cent.

MetroScape

Collaborative Class
Italian designer and architect Tarshito Nicola Stripoli has been busy rearranging world geography.
more...

Looking Glass

Delhi Salon: Jacques Dessange

Mumbai Theatre:
IMAX dome

Mumbai Restaurant:
Watering Hole

The ambitious Anandgarh township proposal stirs another round of controversy as a high court order foils the Punjab Government's plans of acquiring land for the project. INDIA TODAY's Special Correspondent Ramesh Vinayak reports in
Despatches.