Bulls, Bears and Other Beasts Read online

  Bulls, Bears

  and

  Other Beasts

  Santosh Nair

  PAN

  Contents

  1. A Troubled Adolescence

  2. The Road to Dalal Street

  3. Learning the Nuts and Bolts

  4. The Tricks of the Trade

  5. The Republic of Dalal Street

  6. The Rise of Harshad and the Equity Cult

  7. Dalal Street Gets a New Big Bull

  8. Swimming against the Tide

  9. A Fresh Start, a New Mentor

  10. Not Black, but Grey

  11. Winds of Change

  12. Money for Jam

  13. Another Bubble Bursts

  14. Storms of Change

  15. Caught in a Global Whirlpool

  16. Swimming in the Deep Sea

  17. A New Bull Market with a New Big Bull

  18. Rumblings of Another Crash

  19. From Bad to Worse

  20. Penny Wise, Pound Foolish

  21. Back on the Slow Track

  22. In the Name of Wealth Creation

  23. A Booming Primary Market

  24. No Stopping the Bulls

  25. Margin of Error

  26. An Assured-Return IPO?

  27. The Denouement

  28. The Turn of the Bulls

  29. Satyam’s Big Lie

  30. Bulls Make a Comeback

  31. A Reality Check

  32. Making it to the Big League

  33. A Level Playing Ground

  34. Garibi Hatao, the SKS Way

  35. The Iron Law of Averages

  36. New Year of Little Cheer

  37. Fudging and Pledging

  38. Dalal Street’s Finest All-rounder

  39. FCCB

  40. The Heavy Hand of the State

  41. A New Entrant to the Game

  42. The Long Arm of the Regulator

  Epilogue

  1

  A Troubled Adolescence

  My name is Lalchand – Lal to friends who knew me at school and college, and Lala to friends and acquaintances in the stock market. I was born in 1968 in a nondescript nursing home in Bhandup, a suburb of Mumbai. Father, or Bauji, as I called him, worked at the Bhandup factory of the engineering firm Guest Keen Williams as a plant technician till his retirement in 1992.

  My parents were originally from Jaipur, and had moved to Mumbai under difficult circumstances, the details of which are not relevant to the story I am about to narrate. At the time of my birth, they were staying in the Shivram Singh chawl, off the arterial Jangal Mangal Road in Bhandup West. Bauji was just about able to make ends meet in those days, and having to provide temporary lodging for job-seeking relatives from Jaipur strained his meagre resources further. His generosity irked Ma at times, as it would fall to her to manage the house on a shoestring monthly budget.

  I got into bad company early on – not my fault entirely, when you consider the environment I was exposed to in the chawl, located as it was in one of the crime-infested suburbs of the city. But looking back, I feel I was always inclined to get on the wrong side of the law, despite the decent upbringing my parents provided me.

  I studied in National Education Society, among the better schools in Bhandup at the time, and well known for its Hitler-like principal whose very sight had the boys running for cover. Bauji had managed my admission through a well-connected friend of his.

  When I was twelve, we moved into a one-room kitchen flat in a newly constructed building not far from our chawl. Bauji had to really stretch himself financially to buy the flat. But he was determined to move out of the chawl, not so much out of any desire to move up the social ladder as much as from the realization that the chawl was not a place where his children should grow up. He was aware that I was moving around in wrong company.

  The change of locality made little difference to my delinquent ways. By the time I was in the ninth standard, I had already tasted hard liquor and had taken a liking to the occasional cigarette. My buddies at school were Arthur and Shankar, both a year senior to me, but two years older in age, having flunked the ninth standard. Arthur was a violent boy, always spoiling for a brawl. Shankar was cool-headed, but the strongest of us and also the cruellest.

  Shankar used to moonlight for Babu, brother of municipal corporator Kim Bahadur Thapa who was later killed in a gangwar in 1991. I was taller than most boys my age and of decent build too. But more importantly, I had what Shankar used to call ‘daring’. Looking back, I shudder at the crazy things I did in those years.

  Shankar ran petty errands for Babu, which meant intimidating hawkers who did not pay up, keeping a close watch on or beating up people at Babu’s command, buying him groceries and other such things. Arthur and I assisted Shankar in his assignments.

  I was an average student but was good at Maths. It was Bauji’s cherished desire to see me become an engineer. He had not studied beyond the twelfth standard, but had a good technical bent of mind and was an expert at repairing gadgets, from radios to kitchen taps.

  ‘You know, beta, seeing me fix a fault at the factory, trainee engineers often ask which engineering college I am from. I tell them that I am not an engineer, but some day my son will become one,’ he said more than once at the dinner table.

  But gradually, his hopes faded as word of my exploits slowly got to him. As with every father, there was the initial disbelief when he learnt of my misdeeds.

  I was in standard ten when my father smelt alcohol on me. He had long suspected it but the reality unsettled him. Later that night I heard him tell Ma that unless he took some drastic steps, I would ruin my life and theirs too. What probably helped him stay sane through the trouble I was causing him was that my brother Satish and sister Anju were shaping up well academically.

  Within a month of the alcohol episode, Bauji sold off the flat in Bhandup, and we moved into a rented house in Dombivli. I was halfway through my last school year, but Bauji had decided that I was not to set foot in Bhandup so long as he could help it. Using some connections, he managed to get me admission in the South Indian Association High School in Dombivli West.

  Our moving house caused more inconvenience to my father than to me, since he now had to commute more than half an hour in a crowded local train to reach his factory, whereas previously it took him less than ten minutes by a BEST bus.

  The new school was not to my liking, but I had little say in the matter. An overwhelming majority of the students were south Indian, and so were the staff. There was a bully or two in every class, and some mawaali types as well, but they were a far cry from the Shankars and Arthurs I had got to know so well.

  I was slow when it came to making new friends, and perhaps that helped me focus on my studies. I scored 71 per cent in my SSC, which even in those days was not good enough to ensure admission to the science course in any of the reputed colleges. Not that I was keen on taking up Science, but it had been my father’s dream to see me become an engineer. But by now Bauji too had realized he would not be able to pay the hefty donations that almost every decent engineering college – barring the top two or three – demanded. He had some money left from the sale of our Bhandup house, but it was too much of a gamble for him to stake that money on my academic career.

  So that Bauji did not nurse any false hopes for me and set himself up for further disappointment, I confessed to him that I lacked the aptitude for science and would be more comfortable studying commerce, or any of the arts subjects.

  He did not try to change my mind, and after consulting some friends and relatives, advised me to take up commerce. Truth be told, Bauji’s decision to shift to Dombivli was not a sound one. It could have easily backfired on him but
for an unexpected twist of events.

  Because of massive real estate development in the suburb, Dombivli soon became a thriving ground for thugs and other antisocial elements. Street fights were common, and so was extortion in public view. Disputes over land led to the rise of organized gangs, and rival groups periodically took on each other in broad daylight with crude revolvers, hockey sticks and cycle chains. In many ways, Dombivli was turning out to be worse than Bhandup on the crime graph.

  For somebody like me, who could be provoked easily and was not averse to violence, it was a struggle to stay out of trouble and resist the lure of bad company. I had learnt a few things during my association with Shankar and Arthur, and more than once it crossed my mind to moonlight for one of the local dadas of Dombivli.

  But the enormous daily inconvenience that Bauji was enduring just to keep me on the straight and narrow somehow stirred my conscience. That Satish and Anju still looked up to me embarrassed me, and yet I was pressured by what I thought was my responsibility towards them. Torn inwardly, I kept to a small group of friends and to my studies in college.

  I was in the twelfth standard when Bauji had an accident at the factory that left him physically disabled for a while. It would be ten months before Bauji was able to get back to work. The last two and a half months of his confinement at home were without pay. That period was very tough on all of us, emotionally as well as financially; at one stage, we were not sure if his foot would recover fully to enable him to resume work as before.

  This incident snuffed out whatever little temptation I had left for murky adventures. The last thing I wanted to do was add to the problems at home.

  I worked as an assistant in a revolving library called Yogayog near Dombivli railway station for some months. The money was not much, but every rupee counted at that time. The best thing about the job was it introduced me to the world of books. Until then, I had not really enjoyed reading. I used to put in four hours daily at the library, and with enough spare time on my hands, gradually took to reading. I began with the thrillers and graduated to the classics. My reading habit that I accidentally picked up grew stronger over the years and was to help me immensely in my career in the stock market.

  An attempt to seek my fortune in the Gulf after graduation ended in disappointment. Bauji had paid a recruitment agent Rs 15,000 for a clerical position for me in a trading firm in Dubai, but the agent never delivered on his promise. Left with little choice, I briefly assumed my old avatar to get him to cough up our money. Of course, unknown to Bauji, because I knew he would have severely disapproved.

  I then worked as a trainee accountant in a chemicals firm at Fort for a few months, but the job was not to my liking. However, I could hardly afford to be choosy, given that financially our nose was just above water.

  Call it coincidence or the hand of destiny at work, I bumped into Pradeep Mohan, my classmate in college, as I was lunching at my regular food stall one day. We had only been casual acquaintances in college, but we got chatting as though we had been thick friends back then.

  Pradeep was working in the back office of a stockbroker, and his job was to maintain client records after the trades were done on the floor of the stock exchange. We caught up over lunch regularly after that first meeting, and a good rapport developed between us. He loved to talk, and I was a good listener. He would paint a vivid picture of the happenings in the stock market for me; about how fortunes were made and lost in a matter of hours, about the guile and the ruthless ways of big brokers, and the sway they held over powerful industrialists. But what caught my attention was his remark that one did not need a fancy degree or even formal education to succeed in the stock market. With a bit of skill, perseverance and, most importantly, luck, there was no limit to the money one could make from trading in shares. On my commute back home, I often reflected on my lunchtime conversations with Pradeep.

  2

  The Road to Dalal Street

  When we had known each other for over a month, I asked Pradeep if he could arrange a job for me at a broker’s office. My request seemed to have caught him off guard, and I suspect his initial hesitation may have had to do with the fear of losing a willing listener.

  From whatever little I had understood about the stock market from Pradeep, I was clear about one thing – I did not want to work in a broker’s back office checking share certificates, settling accounts and shuffling paper. I wanted to be in the midst of the action on the trading floor, shouting orders to buy and sell shares.

  At the same time, I was aware that my path to the trading ring would have to start from a broker’s back office. I prevailed on Pradeep to get me any job in a broker’s office. Seeing my determination, he finally gave in. He seemed to have also sensed that I had bigger things in mind despite a willingness to start small.

  ‘I don’t know what big plans you may have in mind, Lal, but don’t be reckless,’ he told me, after he had secured a job for me with one of the lesser-known brokerage firms.

  ‘There are plenty of rags-to-riches stories on Dalal Street that get talked about often. What does not get publicized as much are the riches-to-rags stories, which far outnumber the success stories. People get carried away, thinking it is easy to make money in the stock market, and learn the truth the hard way,’ he said.

  I knew Pradeep was speaking the truth, but I did not want to be weighed down by fear of failure so early in my career. If a steady job with a steady salary had been my goal, I would have been content with my job in the chemicals firm.

  It was in the dying days of 1988 that I began a new chapter in my professional career. Shares had not caught the imagination of retail investors in a big way yet, though awareness about investing in them was steadily on the rise. Easy money had been made by the lucky few who had subscribed to the initial public offerings of some of the best multinational corporations like Colgate, Hindustan Lever, Cadbury, Ponds and the like in the late 1970s and early 1980s. The market was controlled by a group of powerful brokers who mostly speculated on stocks using their own money. Within this group, a smaller subset had the lion’s share of whatever institutional business existed in those days. Other than these brokers, the major players in the market were the domestic institutions – Unit Trust of India being the Big Daddy of them all – and the promoters of companies themselves. In terms of the size of investment corpus, the Life Insurance Corporation was bigger than UTI, but it did not invest in equities as aggressively as UTI did. Foreign institutional investors (FIIs) would start flocking to India in a big way only 1993 onwards.

  Brokerage rates were a princely 1.5 per cent at that time, which in some ways seemed justified because of the complications with physical shares. Despite the juicy commissions, brokers were careful about whom they would accept as clients as there were many dubious operators who would sell them fake shares. These would be detected only when the buyer sent them to the company to get them transferred to their ownership. The seller’s broker would then have to replace the lot or refund the money to the buyer; and if his client did not oblige, he would have to make good the loss himself. That is why you needed somebody to recommend you to a broker before he would accept you as a client.

  Investment based on the fundamentals of a company was still in its infancy. A big reason for this was the lack of sufficient publicly available information on companies. Whatever little information was available was from their balance sheets, which were dated by the time they came into the hands of the shareholders. And few brokerages, even when they were shareholders, sent representatives to the annual general meetings of companies, which were probably the only platform available to shareholders to meet up with managements and quiz them on their business. Still, many brokerages would claim they were the first ones to recommend stocks to their clients based on their meticulous research of companies and their sectors.

  A lot of what passed off as ‘research’ in those days would constitute insider trading today. One heavyweight speculator-cum-investor-cum-broker of
that era managed to get a job for his relative in an auto-component firm in which he owned shares and traded in them frequently. The relative would pass on details of the firm’s monthly production figures to the broker, who in turn used the information to trade in the stock.

  More than stock market professionals, company promoters used to speculate heavily in their own shares, All of them had their favoured brokers, known as ‘house brokers’, who came to be known as proxies for the promoters in the market even if they were not always trading on their behalf. A skilled market player could observe the size and pattern of trades made by these brokers and figure out if they were acting on behalf of company promoters or other clients.

  UTI’s business was crucial to the prosperity of any brokerage firm worth its salt. Since UTI dealt in large blocks of shares most of the time, there was good money to be earned by way of commission. But for many unscrupulous brokers, the big money did not lie in commissions; it was to be made by front-running UTI’s trades.

  Unscrupulous brokers who got buy orders for shares from UTI would first buy some of the same shares for themselves. Naturally, the price of these shares would rise in the market when UTI’s orders were getting executed in the market. At this point, these brokers would sell the shares they had bought for themselves at a profit.

  If it was a sell order from UTI for a stock, the brokers would short-sell the same stock in their personal capacity. Short selling means selling shares without owning them, in the hope that share prices will fall and that you will be able to buy them back cheap and deliver them to the buyer on the trade settlement day. The brokers would later cover their short positions – that is, buy back the same shares they had sold, but at a lower price – as UTI’s sell orders in the market weakened the stock price.

  For brokers without orders from UTI, the next best thing to do was to find out what UTI was up to and try to copy those trades. Due to UTI’s dominant position, brokers were forever queuing up at its office on Marine Lines in Mumbai after market hours. Many brokers were empanelled with UTI, but the cream of the orders went to a select few. Tales abounded of how some brokers were able to consistently get orders from UTI by giving expensive gifts to the officials in the investments department.