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Bulls, Bears and other Beasts by Santosh Nair

No Stopping The Bulls

Just when it felt that the market had stabilized, the 9/11 attacks in the US took place which plunged markets worldwide into another spell of gloom. The ripple effect of the US recession was felt all over the world. The Sensex slumped to an eight-year low of 2,600. Instead of companies, this time entire stock exchanges were shutting down.


GB had remarked to Lala that the products and services of various companies were trusted by clients. And that trust was what it took to stay in business and not a high stock price. By 2003, Lala had split with Monk and was on his own. He had returned the money that Monk had loaned to him for the membership card. The beauty of public issues was that they were liquidity guzzlers. By June, it was certain that a bull market was underway again. Every bull needed a leader to look up to and this time the Big Bull was "Rakesh Jhunjhunwala". He began to be referred to as 'India's Warren Buffet'.


As the elections approached in 2004, the left parties backed the Congress-led UPA without being part of its government to block BJP from coming to power at the center. The bull run reversed faster than anyone would have imagined and the market sank lower.


As the bull market began to gather steam again, promoters realized that the higher the earnings and earnings growth potential, the more value the market would assign to a stock. Thus, began the game of "market capitalization" and "wealth creation" as the promoters went in for an image makeover.


In a growing market, promoters were keen to show off a fat bottom line, real or fake, as it helped them raise equity capital at fancy valuations. Increasing costs of plant and machinery also helped to divert the company's money to the promoter's accounts. With the market rising once again, Ketan Parekh was back in action. He was operating through fronts. To Lala's surprise, Monk refused to do business with Ketan as he was particularly bitter towards him.


The IPO boom continued in 2005 as well. Jet Airways and Suzlon Energy were the most sought-after stocks of that year. However, many investors started to regret their decisions within a month of their purchase as the companies' financial performance kept worsening steadily. Often merchant bankers and even some promoters would ask a number of the reputed institutional investors to bid for a large number of shares in their issue. This helped to create the impression that the issue was in demand with fund managers.


In a probe conducted by SEBI in 2006, investigators found that in 21 IPOs, shares meant for retail investors had been cornered by a group of 85 financiers working through players that were fronting for them. The drama continued with 75 companies raising ₹24,779 crores in 2006.


FIIs were buying everything available and retail money flows into mutual funds was also on the rise. By April, the Sensex had rocketed to 12,000 and to 14,000 by December. Reliance Petroleum was the blockbuster IPO of that year.


2007 turned out to be the high noon of the IPO boom, as 100 companies together raised over ₹34,000 crores. Property prices shot through the roof across the entire country. Nearly 43% of all the money raised through IPOs that year was by realty companies. The public issue of the year was the KP Singh promoted DLF. 


Outsized pay packages became quite common across the corporate world as companies were making massive profits. In the last quarter of the year, three well-known brokerages - Motilal Oswal Securities, Religare Enterprises and Edelweiss Capital issued IPOs. They fetched an overwhelming response and got off to a flying start as soon as they got listed.

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