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16 Nov 2008, 0131 hrs IST, Shantanu Nandan Sharma & Aman Dhall, ET Bureau , News Published in ET
Sunday ET had front paged a report last week on market manipulations by companies across sectors and sizes, which highlighted the fact that manoeuvring of stock prices is no longer limited to just insider trading.
We decided to take the story forward to bring out the exact modus operandi of the manipulations along with the companies said to be involved, according to the Intelligence Bureau (IB) report.
The IB report mentions the names of Sterlite Industries Ltd (SIL), Mumbai-based Uttam Galva Steels, Kolkata-based Microsec Financial Services, Ahmedabad-based Kiri Dyes & Chemicals and Bell Corporation, Bangalore-based Cerebra Integrated Technologies, and Hyderabad-based Celestial Labs for their alleged involvement in market tampering. The modus operandi of market manipulations included placement of shares in benami or front entity company names, granting contracts to brokers to play with their shares and entering into agreements to indulge in circular trading.
According to the IB report, Sterlite Industries, part of the Vedanta group, has indulged in alleged insider trading during September, 2008. The report found strong evidence of insider trading in SIL. It highlighted how the company, which announced its decision to restructure into three commodity-focused vertical companies on September 8, revoked its decision quite dramatically after 16 days. After the restructuring announcement, SIL's share price declined by as much as 33% on the bourses to hit an intra-day low of Rs 405 on September 17, before it again started its northward journey.
To quote from the report: "Thereafter, the SIL stock began to rise despite negative views expressed by analysts. By September 24 (the date on which company announced revocation of its restructuring plan), the stock rose by almost 25% to touch an intra- day high of Rs 517." SundayET's repeated efforts to contact Sterlite have failed. Meanwhile, the IB report, has been submitted to the ministry of home affairs (MHA). When contacted, the official spokesperson of the MHA said, "I am not authorised to talk about any IB report."
Moving on to Uttam Galva Steels, the report stated that an associate cartel of brokers in league with the company's promoters bought five million shares from the stock market at a price of Rs 40. The promoters are now planning to buyback those shares in early 2009 at Rs 62. Uttam Galva Steels did not respond to an e-mailed questionnaire sent to the company's chief financial officer.
The Celestial Labs case is also one of brokers being in cahoots. According to the IB report, a Kolkata-based broker and a Delhi-based broker entered into an agreement with the promoters of the company to indulge in circular trading leading to price manipulation. When contacted, A N Singh, managing director of Celestial Labs said "the statements are absolutely unfounded".
In case of Cerebra Integrated Technologies, the report said that a Chennai-based stockbroker has shown keen interest in the company's stock since January 2007 in collusion with other market manipulating entities. The broker who trades through multiple accounts has been actively indulging in circular trading, thereby creating artificial stock price, the IB report said. On the Bombay Stock Exchange (BSE), the company's market capitalisation has soared from Rs 5 crore (January 2, 2007) to almost Rs 29 crore (September 30, 2008).
For an investor who invested in the stock in the beginning of the last year, the annualised returns over the period of 21 months would have been a whopping 260%. An e-mail sent to the company's corporate communications department didn't elicit any response.
The same Chennai-based broker, said the report, has now been granted a 'contract' to 'play with' Rs 100 crore worth of shares of Ahmedabad-based entity, Bell Corporation, which plans to list on the bourses in the near future. The broker operates through the Gopalapuram branch of two leading private banks in Chennai. A mail sent to the company also went unanswered.
Similarly, in collusion with the promoters of Kolkata-based Microsec Financial Services, a broker along with another Ahmedabad-based operator is planning to manipulate their upcoming public offering, the report pointed out. The operators are in constant touch with each other with regard to "placement of shares in benami and front entity company names." Earlier this year, Microsec had filed a draft red-herring prospectus with the market regulator.
It is planning to raise Rs 160 crore from the public issue. The company too didn't respond to the SundayET questionnaire. Tinkering around with IPOs is, of course, not new to the Indian markets. Manipulators have always found it lucrative to manipulate stock prices in the primary market, especially of small public issues (less than Rs 400 crore).
About Kiri Dyes and Chemicals, the report said that the promoters maintain a stranglehold, through market manipulators, on the company's free-floating stock. The company officials declined to comment stating that their "MD Manish Kiri is out of India for a business tour for three weeks". Prime Database MD Prithvi Haldea feels that Sebi should come down heavily on market manipulators who artificially raise expectations of unsuspecting investors. "It's a public menace. No regulator around the world has been able to do enough to tackle this issue. The major hindrance being lack of evidence to support the instance," he said.
Mr Haldea doesn't rule out the possibility of Indian mutual fund companies and institutional investors being hand-in-glove with the market manipulators to create artificial prices and volumes.
The only use of an obstacle is to be overcome. All that an obstacle does with brave men is, not to frighten them, but to challenge them.
Reliance Industries - India`s largest private sector company, announced a small rise in its standalone net profit for the second quarter ended September 2008 beating analysts` expections. During the quarter, the profit of the company rose 7.43% to Rs 41,220 million from Rs 38,370 million in the same quarter, previous year. Analysts polled by Bloomberg had estimated profit of Rs 40,139 million for September 2008 quarter. Net sales for the quarter rose 39.77% to Rs 447,870 million, against analysts forecast of Rs 433, 940 million, total income for the quarter rose 39.51% to Rs 449,380 million, when compared with the prior year period. The company posted earnings of Rs 28.40 a share during the quarter, registering 7.58% growth over prior year period.During the quarter, the operating margin of the company fell by 358.63 basis points to 14.46% compared with the previous year period. Interest cost increased 70.04% to Rs 4,370 million while depreciation cost rose 11.96% to Rs 12,640 million over previous year period.
Jaiprakash Hydro - Announced a substantial drop in standalone net profit for the quarter ended September 2008. During the quarter, the profit of the company declined 47.45% to Rs 668.50 million from Rs 1,272.10 million in the same quarter last year. Net sales declined marginally 8.54% to Rs 1,083 million, while total income for the quarter fell 8.17% to Rs 1,155.50 million, when compared with the prior year period. The company reported earnings of Rs 1.36 a share during the quarter, registering 47.49% decline over prior year period.During the quarter, the operating margin of the company declined by 58 basis points to 94.85% compared with 95.43% of the previous year period. Interest cost decreased 12.30% to Rs 229.50 million while depreciation cost rose 0.17% to Rs 116.20 million over previous year period.
Jaiprakash Hydro - Announced a substantial drop in standalone net profit for the quarter ended September 2008. During the quarter, the profit of the company declined 47.45% to Rs 668.50 million from Rs 1,272.10 million in the same quarter last year. Net sales declined marginally 8.54% to Rs 1,083 million, while total income for the quarter fell 8.17% to Rs 1,155.50 million, when compared with the prior year period. The company reported earnings of Rs 1.36 a share during the quarter, registering 47.49% decline over prior year period.During the quarter, the operating margin of the company declined by 58 basis points to 94.85% compared with 95.43% of the previous year period. Interest cost decreased 12.30% to Rs 229.50 million while depreciation cost rose 0.17% to Rs 116.20 million over previous year period.
Punj Lloyd - An engineering and construction company, on consolidated basis, disclosed a 61.08% rise in net profit of Rs 1,441.20 million for the second quarter ended Sep. 30, 2008 as compared to Rs 894.70 million for the quarter ended Sep. 30, 2007. The total Income increased 53.48% from Rs 19,247.10 million for the quarter ended Sep. 30, 2007 to Rs 29,540.80 million for the quarter ended Sep. 30, 2008. On standalone basis, the company disclosed a phenomenal rise in net profit for the quarter ended September 2008. During the quarter, the profit of the company rose 2.81 times to Rs 880.50 million from Rs 313.70 million in the same quarter, last year. Net sales for the quarter surged 52.47% to Rs 15,835.20 million, while total income for the quarter jumped 50.18% to Rs 15,838.60 million, when compared with the prior year period. The company reported earnings of Rs 2.90 a share during the quarter, registering 2.66 times growth over prior year period. During the quarter, the operating margin of the company climbed 393.41 basis points to 12.98% compared with the previous year`s period of 9.05%. Interest cost increased 29.53% to Rs 418.90 million while depreciation cost rose 0.78% to Rs 271.20 million over previous year period.
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