Bulls, Bears and other Beasts by Santosh Nair
Rumblings Of Another Crash
At the core of the unexpected boost in the IT industry was the Y2K bug. Fixing the bug required a huge volume of manpower which only a country like ours could provide. The spurt in the undersea fiber-optic cable lines between India and the US, brought in great fortunes.
None of the major Indian IT companies were dotcom players. However, the shares of Infosys, Wipro and Satyam were on the rise. By the end of May, Pentafour was among the five most traded stocks on the NSE and the BSE. Ketan got fund houses to buy his holdings rather than selling them off in the market. The Pentafour formula was repeated with other stocks as well. Soon, stocks that were fancied by Ketan had begun to soar to unbelievable levels and he became the face of the bull run that began in January 1999. Unlike Harshad, Ketan was not the one who created the wave. He just rode it skillfully. The Stock market had then split into two parts - new economy stocks and old economy stocks.
By observing the stocks that Monk was buying through him, Lala realized that Monk was quite close to Ketan. The boom in technology shares swelled Lala's net worth beyond imagination. A combination of war against Pakistan and political instability made the Sensex rise nearly to 30%. Technology stocks were soaring and making money had become a child's play. Everyone knew that this kind of mad rise in stock prices could not go on indefinitely. Sensex touched the 5,000 mark in October. Financially, 1999 was the best year of Lala's life. However, on the personal front, he had to endure a huge loss. His Bauji had lapsed into a coma from which he never recovered.
Fascinated by the surge in stocks, most players expected the next year (2000) to be even better. They believed that the FIIs would allocate more money to India since it was performing quite well globally. The index had risen by 7.5% in the first quarter itself. The bull market that ranged from January to March that year could only be described as 'madness'. Infosys soared from ₹14,500 to ₹28,000, Wipro from ₹2,600 to ₹9,800 and so on. Analysts started justifying the high valuations based on price-earnings growth (PEG) ratio. The Union Budget raised the FII ceiling in listed companies to 40% which fired up the markets even further. By the end of February, Lala's paper wealth had grown beyond bounds.
The party on Nasdaq ended abruptly with a 4% drop. Overnight the technology stocks became pariahs. The panic selling that took place on Dalal street halved the prices of these shares. For many investors, paper wealth diminished considerably or vanished completely.
In October, the Sensex had fallen to around 3,700 from its peak of 6,000 plus. Ketan was foolishly trying to support the prices of his stocks even in the face of relentless selling. Monk had remarked that the Bears would surely make a meal out of Ketan very soon. Ketan had been done in by overconfidence and things were going downhill for him quite rapidly.
After a taped conversation between the BSE President, Anand Rathi and the surveillance official was leaked to the press, SEBI had dismissed the entire board of directors of the BSE. Amidst the growing suspicion that the Bears were responsible for the chaos in the market, SEBI banned naked short selling. This meant that a trader could only sell shares owned by him. The Sensex shed another 500 points following the ban.
Meanwhile, Ketan's situation had been getting worse. The raids by investigating agencies and the freezing of his bank accounts had left him with no funds. Many of his brokers had started to offload his positions. On the CSE, there was a cumulative shortfall of ₹106 crores as Ketan's associates had been unable to pay the exchange. On 30th March, Ketan was arrested. The slowdown in the US after the Nasdaq crash had then begun to pinch Indian software firms.
On Nasdaq, the new economy stocks were being punished by investors with a feeling of vengeance. After its peak barely a month ago, it had come down nearly 35%. Many of the earlier high-flying stocks had begun to appear cheaper and the new entrants in the market had found it to be tempting. The buyers had failed to understand that the stocks were not really cheap but that they only appeared to be so when compared with their peak prices.
Lala too had lost a lot of money at that time but he was not disheartened. This was partly because he feared that if he had too much money, it would attract the attention of the tax department and the underworld, and partly because he felt that too much money would blunt his trading skills. Despite the market crash, it had been a good enough year for him. He had invested in property, acquired a bigger flat in Ghatkopar and also bought a new car.