SEBI to introduce 7 derivative instruments

SEBI to introduce 7 derivative instruments

Market regulator Securities and Exchange Board of India (SEBI) decided to introduce seven new derivative instruments like mini-contracts and long-tenure options for giving more choice to investors.

``It is expected that these new derivative products will provide investors with a larger range of risk mitigation products and create more activity in Indian onshore markets,`` the regulator said in a statement after its board meeting in Chennai on Wednesday.

The new products include mini-contracts on equity indices; options with longer life/tenure; volatility index and futures & options (F&O) contracts and options on futures.

Other products which would be introduced are bond indices and F&O contracts; Exchange-traded currency (foreign exchange) F&O and exchange-traded products to cater to different investment strategies.

The products are based on interim recommendations of the M Rammohan Rao Committee.

The regulator also said these products are expected to bring transparency in trading of derivative instruments with appropriate regulatory supervision.

SEBI said the products will be launched under a suitable regulatory framework to be worked out in consultation with other regulators and stakeholders.

The timeframe for starting these products will depend on the product design, risk mitigation features and conformity to regulatory requirements.

As regards the over the counter (OTC) derivatives products, the SEBI Board would take a decision after receiving the recommendations of the Rao Committee.

HOT STOCKS for 15-11-07

STATISTICS :

Nifty is firm now for a tgt of 6000+ levels, can see new highs in the mkt in coming days, trade carefully since mkt is in highs, Nifty has a support @ 5900 and Resistance @ 6004, if nifty closes above this levels, we can see new highs in the mkt in coming days

FUTURES :

SATYAM : sell for a tgt of 320 , sl @ 338

RELIANCE : buy for a tgt of 2940+ , sl @ 2860

PUNJLOYD : buy for a tgt of 516+ , sl @ 500

OMAXE : buy for a tgt of 334+ , sl @ 320

ESSAROIL : buy for a tgt of 145+, sl @ 120

NIFTY : buy for a tgt of 6000+ , sl @ 5930

OPTIONS :

RIL : buy call 2850 for a tgt of 150+ , sl @ 120

HUL : buy call 200 for a tgt of 7+ , sl @ 4

RCOM : buy call 740 for a tgt of 40+ , sl @ 25

Mini Bulls And Their Fake Runs

Mini Bulls And Their Fake Runs

The number of scrips manipulated far outnumber those detected by SEBI

VEESHAL BAKSHI
Market analyst

Naorem Ashish

EVEN AS market pundits grope in the dark to find a digestible reason behind the recent unprecedented bull run, certain manipulative stock market operators have sneaked in to the market and made a killing. Market regulator Securities & Exchange Board of India (SEBI) has managed to nab some, but the number of scrips being manipulated today far outnumbers those that have been detected by SEBI so far. And the irony: authorities know about rampant price rigging in some stocks but are helpless as manipulators outsmart them time and again.

Want examples? Take the case of a Delhi-based market operator, banned by SEBI last year for manipulating prices of a company. He is back and openly rigging prices of nearly half-a-dozen scrips. So are some mid-sized and big operators based in Ahmedabad, Kolkata and Mumbai. How does this work? These operators typically zero in on low-priced scrips (priced between Rs 15 to Rs 125). There are two principal advantages behind choosing such scrips — the promoters of such companies are willing accomplices in facilitating the operators to rig their share prices. Secondly, small investors get easily lured to such scrips since they are psychologically more inclined towards investing in lowpriced scrips and don’t have the appetite and aptitude to buy high-priced shares.

Even as SEBI, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are closely monitoring shares that have seen a sudden surge in prices and trading volumes, the operators have been a step ahead of these agencies. These operators are trading through a clutch of stock market brokers who execute the buy-sell orders through thousands of client accounts, majority of which are fronts for these brokers. So on paper, it all looks genuine.

When money is to be made at the cost of retail investors, the modus operandi is to create artificial price increase in shares and then spread the word about the stock among investors. As the gullible investors start buying, the operators continue to further rig the prices upwards. This creates confidence in the investors that the market information about the share price going up was genuine. As more and more investors join the bandwagon, the operators start off-loading their shares at higher prices. The profits generated are shared with the promoters.

The modus operandi is different when the shares are to be placed with institutional investors like mutual funds and foreign institutional investors (FIIs) or the company wants to raise fresh funds at a hefty premium on its shares. When the company wants to make a placement with the institutional investors, the promoter gives a mandate to a market operator to mop up liquidity from the market by gradually picking up shares from the market. After the shares have been purchased by the operator — through his associates and front entities — the price is rigged up. The company, in the meanwhile, starts making announcements that will have positive impact on the share price and paints a rosy picture of the company’s future. Institutional investors are led to believe that the share price has great potential in the future. The institutional investors are then sold the shares in the open market out of the stock which was cornered earlier by the operators at much lower prices.

IN CASE of fresh fund raising, the game is simple. Rig the price of the share over a period of time, manipulate balance sheets to show robust profit figures, paint a rosy picture of the future to justify the price rise, and then raise money through either a preferential allotment of shares to foreign and domestic funds or through issue of foreign currency convertible bonds (FCCBs), which are convertible into shares at a pre-agreed price within a period of five years from the date of issue.

Till the bull run is on, nothing seems wrong, for everyone is making money, even if it is notional wealth. But what goes up must come down. The current bull run will come to an end one day, though nobody knows when that would be. Whenever the market will take a beating, both retail and institutional investors will be left saddled with shares of scores of such companies. SEBI and investigating agencies will then swing into action. Some unscrupulous managements and market manipulators may be even caught and banned from the market, as it happened in the case of the Harshad Mehta and the Ketan Parekh scams. But will investors recover their losses? It’s virtually impossible. It has never happened at the Indian bourse. Nor will it happen.

Bull Run :: does History has some clues for this BULL RUN

Vertigo On Dalal Street

It’s high blitz one day, bloodbath another. Is a sinister hand shaking up the stock market? Is there cause for alarm? SHANTANU GUHA RAY and VIVEK SINHA report

Sudeep Chaudhari

ON JULY 25, 1990, the Indian stock market hit the 1,000 mark. It took two slow years to climb to 2,000 on January 15, 1992. For three months then, it rocketed dizzily — to 3,000 on February 29 and 4,000 on March 30. Then it stopped. It took seven full years to reach the 5,000 mark on October 8, 1999. Another year to touch 6,000. And then five long years before it climbed to 7,000 on June 20, 2005.

Compare that to 17,000 last month; 18,000 a few days later; 19,000 even as this goes to press. You don’t need to track the history of the Indian stock exchange to know the graph has never run crazier. But it’s not vertigo anyone’s complaining of in the market. The tensions are about other things. How much higher is this run going? How far should one ride it? Are corrections called for?

Real-estate tycoon KP Singh reaped an astounding Rs 19,500 crore on a single day early this October and DLF’s turnover touched the Rs 1,30,000 crore surpassing its employees and stakeholders’ wildest dreams. The company had listed itself barely four months earlier; its value has almost doubled since then. If this streak continues, Mukesh D. Ambani, Chairman of the Reliance Industries conglomerate could well jump ahead of Bill Gates, Warren Buffet, Carlos Slim and Laxmi Mittal to the coveted number one slot as the richest man in the world. Market pundits have already started making mega announcements to this effect in the dailies.

These are the conjectures on the market today. Excitement. Rumours. Dizzy calculation. That’s the mood. In barely 21 days, the Sensex has soared 2,154 points (14 percent) and then it grew further to touch the magical figure of 19,000. The Finance Ministry issued an instant note, so did the Securities and Exchange Board of India (SEBI).

What’s driving this? FIIs have been pumping in loads of money in the Indian market. Consider this one: the FIIs pumped in an unprecedented $ 4.2 billion in a nine-day stretch. This is not all. Global financial consultancies like Credit Lyonnais feel the Sensex could actually touch a whopping 40,000 mark in just three years time. Others, like the London- based brokerage Astaire and Partners, are more conservative: the 30,000 mark in the next four years is what they predict.

But amidst all this euphoric hysteria, perhaps it would do well to go back to the history of the stock market. When was the last time the graph escalated so crazily? What are the lessons of 1992? Shouldn’t some alarm bells be going off? Is the bull-run of the stock market so heady for everyone — investors, corporates, brokers, government, media — that no one is willing to pause and ask uncomfortable questions?HOW IRRATIONAL is this exuberance? How justified is this optimism? What’s driving the boom? Is there cause for caution? For those who are willing to disengage from the euphoria and probe the truth, the first few cautionary voices are starting to
come through.

“This tsunami in the Indian market has followed after the US federal interest rate cut on September 18 this year. But there is an element of a bubble that’s built up because of this surge and it needs to be observed closely,” says Abheek Barua, chief economist, HDFC Bank. Nimesh Shah, director of Mumbai-based brokerage firm, VFC Securities agrees whole heartedly: “I would say the sudden rise is definitely dangerous and though the Sensex might hit new heights by the end of the year, it’s important for investors to wait and watch.” And he is not alone is issuing the warning signals.

Last week, Finance Minister P. Chidambaram himself finally began to caution retail investors. Speaking at a conference in New Delhi, he said unprecedented foreign
investment flows into the rapidly growing economy had pushed the rupee higher and New Delhi was having trouble handling the rush of funds. “The rupee is an uncomfortable zone and we must find ways to manage a competitive exchange rate without hurting investments.

We cannot let the rupee suffer under pressure,” he warned. But are FIIs the only trigger for this unprecedented bull-run? Or is there something more shadowy, and, consequently, more unpredictable and sinister working behind the scenes? How would a sudden crash impact the mad rush of investors? What would be the magnitude of the damage? For those who have their ear to the ground, the market is agog with dangerous rumours. We have been here before. The hushed talk — in confidence, offthe- record — is that the Indian stock markets’ current ultra-run is uncomfortably similar to earlier bull-runs that ended in disaster.

Take 1992. The market had climbed 3,000 points in just three months. Investors were euphoric. Then came the slump. Big Bull Harshad Mehta’s securities scam triggered a crash that destroyed investor confidence for nearly six years. Rs 5,000 crore worth of market capitalisation was eroded in a few days. No one today remembers what happened to thousands of retail investors who suffered because they did not have the luxury of employing stock market advisors. As a result when the slump happened and Mehta went behind bars, they lost it all.

In March 2001, that happened again. Stockbroker Ketan Parekh, working through a network of brokers, ramped up the shares of select companies in collusion with their promoters, driving up the stock market index to dizzy heights. When his scam was busted, panic sales wiped out an estimated Rs 1,25,000 crore of investor wealth in a month. Thousands of small players who had invested in good faith suffered severe losses. Remember statements by Ramesh Gelli, the then chairman of Global Trust Bank which bore the brunt of Parekh’s madness? Gelli told investors that the bank had not sanctioned more than Rs 100 crore to Parekh despite issuing Rs 250 crore.

Big Bull 1 died in custody in 2001. Big Bull 2 — Ketan Parekh — was also arrested and debarred from the market. But he is now out of jail and pursuing a bewilderingly lavish lifestyle. He is known to park himself in suites of exorbitant super-deluxe hotels — out of bounds for even top corporate honchos. The Finance Ministry and investigating agencies like the Enforcement Directorate have reports of him travelling business class and even hiring private jets for travels. On ground, his preference is Merc-taxis. His parties are always thrown at the most expensive pubs in five-star hotels. All this when he is banned from the stock market, his bank accounts and assets remain seized by Income Tax authorities, and he needs to clear debts touching a whopping Rs 250 crores. Much of the market’s current buoyancy is probably legitimate. A majority of listed companies, touching the high water mark, may well be the beneficiaries of a genuine and congratulatory growth spurt. The trouble is, when the panic comes, everybody suffers. Distinctions between genuine and artificial are drowned in the chaos.

But that the big boys are at play again is evident on the Bombay Stock Exchange, the NCDEX and the MCX. Those who care to listen are again whispering about a dangerous shadow falling across the market operations on Dalal Street. The man is old and familiar, but he now has a new sobriquet: brokers are calling it the new proxy game of “Mr India”.

Bull in net Ketan Parekh's arrest in 2002 caused the last big crash

LIKE BEFORE, “Mr India’s” modus operandi seems to be the use of a host of front companies and a cartel of brokers from outside Mumbai. Speaking of him, a top finance ministry source says, “He has been aggressive in commodities for the last three years through a clutch of brokers on both NCDEX and MCX. In fact, the sharp rise in prices of menthol in the commodities exchanges was attributed to a bull-run triggered by him. He is high on commodities such as sugar and crude. But since he is currently operating through a band of brothers who act as his front, no one can touch him.” The gameplan is simple: do things without proof, do not keep even a shred of paper with you.

“He remains completely in the background, does not trust anyone and keeps changing his mobile numbers every three weeks. The numbers are given to a very selected clientele,” says the source, adding: “A number of medium level companies have already started queuing up to him to pick his razor-sharp brain.”

The Bull Effect If the bull rise continues, Reliance chairman Mukesh D. Ambani, currently placed behind Carlos Slim, Bill Gates, Warren Buffett, and Laxmi N. Mittal, could take the No 1 slot Real estate tycoon KP Singh reaped $5 billion on a single day of stock fury and touched the $33 billion mark An estimated $4.2 billion was pumped in by FIIs in just nine days Finance Minister Palaniappan Chidambaram wants markets to find a competitive exchange rate for the rupee and is worried about such unprecedented FII inflow London-based brokerage firm Astaire and Partners predicts the Sensex touching 30,000 by 2011

The unprecedented, almost astronomical, market spiral has raised the antenna of several regulatory agencies, but the trail is impossible to pin down. “We have reacted to a number of government and intelligence reports that some of these banned players are playing the market again. And they are not playing small or medium level, they are playing big and that is a matter of concern because of steady rise of the commodities market. Secondly, barring us, not many agencies are focused on the commodities market,” says Kewal Ram of the Forward Market Commission (FMC), a regulator for the commodities market. “We’ve tried to put up lots of fencing so that these players cannot take huge positions and we are ultra careful now. But on record, we have no names to offer. And unless that happens, no one is going behind the bars.” Does that put the ball back into the ministry’s net? Perhaps yes.

The SEBI, on the other hand, is confronted by exactly the same problem. “We are tracking a lot of movements because there’s definite information that a number of banned players are back in the market. We have reports on a whole range of players who are active through fronts. It seems to be the latest trend,” says G. Anant Raman, wholetime member, SEBI. “But please remember we work with certain restrictions. It’s a Herculean task to crack down on those who are banned but
still operating. Just because a banned broker is having a party or travelling in private airplanes, we cannot touch him. It’s for the investigating agencies to look into his source of income. We are not here to find out who’s travelling business class and hiring Mercs and entertaining friends in plush hotels. We can only ban people and recommend to the ministry that their accounts are frozen,” adds Raman, in an obvious clue.

IN THE wake of all this, the finance ministry has reportedly been furnished a detailed note on old operators like Nirmal Kotecha, Manish Marwah and Ketan Parekh. In fact, both Marwah and Kotecha have already beenindicted by SEBI for manipulating the shares of Atlanta, a real estate firm. A top SEBI official admits tracking the surge in stocks like IFCI and a few other index heavyweights that have contributed to the bourse’s on-going bull-run.

What raises all this beyond the realm of idle conjecture is the fact that the finance ministry itself is keeping tabs on “Mr India” and a list of his suspected operatives. Among them are:
• A prominent financial sector company with a large investment portfolio in real estate which has had its price skyrocketing over the last two years.

• A Mumbai-based real estate company whose share price has increased three times in the last two months.

• A Mumbai-based infrastructure companywhose share has increased ten times after its listing in the last 14 months.

• A Mumbai-based IT company whose fluctuating share has increased five times in less than six months.

Yet, the ministry’s hands are tied. Referring to the masterful, almost intangible, operations of Mr India, the official says on condition of anonymity, “It’s hard for SEBI, the ministry and security agencies to establish a direct link between the banned player (Mr India) and price manipulation because tracking surrogate ownership, benami transaction and financial layering in the market is always tough.”

So how exactly does “Mr India” manipulate the market and create his bull-runs? It seems he meets promoters of companies across India. Several promoters still have faith in his capabilities and his web of front entities. They give him the mandate to rig their share prices. “Mr India’s” front entities then start buying the shares of these specific companies. The buying is funded, partially or largely (depending upon the deal with him) by the promoters of the companies themselves. This is very hard to track as the payments to these brokers are normally made in hard cash. Payments are made all over the country, at all strange places. Interestingly, this is a trend which was synonymous with the two crashes that happened with Mehta and Parekh.

Simultaneously, the company makes positive announcements to fuel a bull-run in its share price through various newspapers and magazines. After the stock price is rigged up to a desired level, mutual funds, foreign institutional investors and hedge funds are roped in to buy large quantities from the market. The shares that these funds buy from the market are the very shares that have been cornered by “Mr India’s” front entities at much lower prices.

“The huge illegitimate profits made in the entire exercise are shared between ‘Mr India’, his front men and the promoters of the companies,” says a prominent Mumbai broker.

High rise Brokers and stock analysts will be reined in by SEBI

“The media’s role in the stock market movement is a matter of intense debate. We have already asked for certain regulations that needs to be imposed instantly. Once it comes into force, we will — hopefully — have more serious reporting,” adds Anant Raman. There are chances that even stock market advisories would come under the SEBI dragnet because of countless complaints received by the market regulator on their illegal movements, especially those relating to their connivance with promoters and regulating shares in a specified period so as to push the price of the stock. This increased transaction shows that the scrip is in demand, as a result of which a gullible investor moves in and purchases the stock. Once the price goes up, the promoter-broker duo quickly takes the escape route. This, in turn, leaves the small time, retail investor in complete mess. And it happens only because the small investor continues to remain at the mercy of the promoter-broker cartel.

The unethical connivance does not just stop there. Nor is this the only money the conspirators make. Many of the companies collaborating with Mr India are able to raise fresh capital at high premium, justified by the artificially raised high price of their shares. This fund raising is often done through another round of public offer, a foreign currency convertible bond (FCCB) issue, a preferential allotment of shares or any other convertible instruments to foreign or domestic institutional investors. Sources say many of Mr India’s present associates are those who were involved with him in the past. The regrouping of old associates has been a win-win situation for all, ostensibly because Mr India owed them crores of rupees from his earlier game.

There are two alleged front entities that are particularly in the eye of investigating agencies. These are headed by brokers who were small-time fringe players in “Mr India’s” earlier game. One of them, a 40-something Punjabi stock market operator, shifted his base from New Delhi to Mumbai a few years ago. He has been involved in the IPOs and subsequent price rigging of at least a dozen companies, including a pharma company from the north and a Mumbai based infrastructure company.

The SEBI has already nailed him for rigging the price of this infrastructure company and has come out with highly adverse interim orders against both him and the promoters of the company. No one, of course, knows how he is back in the market and active as ever.

The second person, say ministry sources, is from Gujarat and has a short Gujarati surname. He and his Punjabi cohort used to work together till they parted ways around four years back. This Gujarati has been in the news recently for successfully manipulating the price of a diamond jewellery company. SEBI had information of the same but before it could move it, the deal was struck and the money made.

These are the fronts. “Mr India” himself remains tantalisingly elusive. The only trail he leaves are unexplained binges in posh hotels, a battery of 13 cell phones he changes every month, and a surging stock market index reminiscent of the dangerously galloping bull.

HOT STOCKS for 13-11-07

STATISTICS :

NIFTY will be volatile so trade carefully will stop losses, Nifty has a support levl @ 5640 levels, Nifty has a resistance level @ 5750 levels, so as Nify touches book partial pfts,

FUTURES :

ZEEL : buy for a tgt of 310+, sl @ 297, can go to 315 levels

IDFC : buy for a tgt of 194+ levels, sl @ 180

MOSERBAER : buy for a tgt of 285+ , sl @ 272.5

NIIT TECH : buy for a tgt of 272+ , sl @ 255

RNRL : buy for a tgt of 170, sl @ 160

SAIL : buy for a tgt of 256+ , sl @ 245

OPTIONS :

RCOM : buy call 720 for a tgt of 45+ , sl @ 30

INFOSYS : buy call 1740 below 35 for a tgt of 50+ , sl @ 28

IDFC : buy call 190 for a tgt of 15+ , sl @ 6

HOT STOCKS for 13-11-07

STATISTICS:

Nifty will be volatile, for tommorow mkt will have a firm opening, resistance level @ 5675 level, book pfts gradually dont hold for long time,
Nifty has a support @ 5580 levels, can see nifty @ 5400 levels before expiry, so i would suggest u to get out if u are in pfts

FUTURES :

IDFC : buy for a tgt of 194+ , sl @ 184

BHARTI : buy for a tgt of 858+ , sl @ 828

SATYAM : buy for a tgt of 430+ can go upto 450 levels, sl @ 404

NTPC : buy for a tgt of 261+ , sl @ 249

SUNTV : buy for a tgt of 320+ , sl @ 306

NIFTY : buy for a tgt of 5700, sl @ 5605

OPTIONS :

IDFC : buy call 200 for a tgt of 12, sl @ 4.5

NTPC : buy call 250 for a tgt of 19+ , sl @ 11

NIFTY : buy call 5700 for a tgt of 170+ ,sl @ 130

HOT STOCKS for 12-11-07

STATISTICS :

Market will remain volatile till this expiry, Nifty can see a trend between 5580 - 5720 levels.
Nifty will stabilise around 5400 levels, one can buy some good stocks for long term around these levels

FUTURES :

RELIANCE : sell for a tgt of 2690 , sl @ 2760

SATYAM : buy for a tgt of 434+ , sl @ 422

SUNTV : buy for a tgt of 315+ , sl @ 305

UNITECH : sell for a tgt of 351 , sl @ 359

MOSERBAER : buy for a tgt of 280+ , sl @ 264

OPTIONS :

NIFTY : buy put 5600 for a tgt of 225+ , sl @ 165

INFOSYS : buy call 1740 below 55 for a tgt of 80+ , sl @ 48

TTML : buy put 40 for a tgt of 3+ , sl @ 1.5