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Bulls, Bears and other Beasts by Santosh Nair

The Long Arm Of The Regulator

The March of 2012 was a series of bad news, beginning with ONGC's botched Offer For Sale (OFS) through which the government planned to raise ₹12,700 crores by selling a stake of 5%. The issue had to be bailed out by LIC as there was an absence of demand from other investors. It had to soak up almost 90% of the shares. It was likely that LIC was doing this at the behest of the government. 

 

After many hurdles, MCX-SX had finally launched its equity trading platform in February 2013. Market conditions were far from idle for a 3rd stock exchange but Jignesh was convinced that people would start investing more just because there was a new exchange on the block. However, Lala knew that at best, MCX-SX would be able to snatch business from its rival exchanges by offering incentives to the traders and investors. The market observers were worried that it would turn out to be a race for the bottom if the stock exchanges decided to relax margin requirements to attract more members. More than any other factor, it is liquidity that is the deciding factor for a trader or investor's choice of exchange to place his trades on. With MCX-SX flagging off operations, high-volume traders like Lala were in demand. The exchange wanted them to do a small part of their business through it. As the rupee weakened, FIIs started pulling money out of Indian equities, setting off a vicious cycle. The impact of this was soon felt in the stock markets.

 

The hardest hit were private sector banks like Yes Bank and Kotak Bank. The country was caught in the classic 'impossible trinity' trilemma, in which it was grappling with weak growth, high inflation and a weak currency. 

 

When Raghuram Rajan formally took charge as the RBI governor, things started to turn around. He introduced such policies that helped the market to get back on track.

 

The year 2014 started on a rather positive note. With each passing day, the market was becoming more confident about BJP coming to power. Tired of recurring scams and inflation, everyone believed that Modi had a plan to set things straight. As the golden period of the economy was approaching, things had started to go rapidly downhill for Lala. He had received letters from the regulator seeking clarification about the unlawful trades done by him. Lala had concluded that somebody powerful was targeting him. Soon Lala found that he was in the bad books of Mr.V who was among the top twenty-five industrialists of the country. Lala had gone after his stock at a vulnerable time in his business, and thus Mr. V had sworn to force Lala out of the market. Mr. V was in a much sounder position now and he had some powerful friends in the right places too. GB suggested Lala to retreat for some time and return to the market after things got cleared up.

 

GB had found a leading industrialist who wanted Lala to manage the share prices of his group companies and make money from trading in other stocks. Lala had begun working for him and got a free hand in deciding his trading strategies. Soon, Lala happened to renew contact with Dipesh who had been his close friend back in school. Dipesh had been regularly trading in small stocks for nearly a year and had wanted to invest more. He would call up Lala quite often and clear his doubts. Lala's sound trading advice helped him a lot.

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Units 12/14