Bulls, Bears and Other Beasts Read online

  The market was in a downtrend till mid-December, but the stock indices ended the year around 20 per cent higher over the previous year. This was no mean achievement, given the storm that roiled Asia during the second half of the year.

  I continued to meet up with Lucky over drinks, and in one of those sessions unwittingly mentioned my deal with Mouse to him. Lucky proposed that the three of us should meet, and against my better judgement, I agreed.

  Mouse was reluctant to meet Lucky, but I managed to persuade him. The three of us met for dinner at the Jewel of India in Worli the following week. As the dinner progressed, I began to regret having arranged the meeting.

  I could see that Lucky was subtly trying to flatter Mouse and tempt him with visions of big money. More worryingly for me, after a couple of pegs, Mouse was no longer his reserved self and seemed eager to impress Lucky. I tried signalling to him to quiet down, but Mouse was on his own trip, becoming more effusive by the minute. I was annoyed and let it show.

  After the dinner, Lucky offered to drop Mouse home. I thought Mouse would decline the offer out of civility since Lucky would have to go out of his way to drop him. To my irritation, Mouse agreed.

  The next day, I called up Mouse at his residence and apologized for being a bit brusque with him the previous evening. Mouse said he did not feel offended and was in fact worried if he had blurted out something unwittingly. For the next couple of weeks, I was regularly in touch with Mouse, and he passed on the information I sought from him.

  He then suddenly stopped taking my calls. This went on for a few days. I suspected that he had switched his loyalty to Lucky. Finally, when I managed to get him on the phone that weekend, I gave vent to my anger and accused him of deceit.

  Mouse heard me out patiently and then said: ‘Fair enough, Lala, but you have been exploiting me all this while by giving me a pittance for such valuable information. I am now getting ten times what you pay me every month. I can help you out once in a while for old times’ sake, but don’t expect me to be at your beck and call.’

  I was furious. ‘So you have sold yourself out to Lucky,’ I railed.

  ‘You can think what you like,’ he replied calmly.

  ‘I am going to write a letter to your seniors and inform them about your side business,’ I said.

  ‘Do so by all means. But that would mean implicating yourself as well. Even if that does not happen, you may still end up making some powerful enemies,’ he said, and hung up.

  I had played my final card, and lost. I had no doubt that Mouse was now taking orders from Lucky. I was mad at being cheated out of a source of precious information. That evening I dialled Lucky and gave him a piece of my mind.

  ‘B*$#c@%d, M@#%*$d, you call me a friend, talk about trust, and is this how you honour friendship? By stabbing me in the back?’ I yelled at him.

  ‘Calm down now, Lala, what’s the matter?’ he asked.

  That made me angrier, and I abused him some more. He still kept his cool.

  He then rang me a couple of days later. I ignored him.

  Lucky persisted. Finally, I answered his call.

  ‘B$#@c**d,’ I said by way of greeting, ‘. . . isn’t it enough that you cheated me once? Or is there something more you want to rob me of?’ I had got over my rage, but was not going to forgive him so quickly.

  ‘Your anger is perfectly justified. Abuse me some more if it helps you get over it. But after that let’s talk like grownups,’ Lucky said.

  The following evening I drove down to Lucky’s place at Khar. He greeted me warmly, and then asked with mock fear: ‘I hope you don’t have a gun or knife on you.’

  ‘That would be being kind to you. I was thinking of something more painful,’ I replied.

  He told me that he had arranged a meeting for me with his influential mentor that evening. Before heading for the meeting, Lucky apologized for what he had done.

  ‘Look Lala, don’t take this personally. I can assure you one thing – your loss will be more than made up,’ he said.

  ‘Let’s see,’ I said, somewhat sceptically.

  We met up with Lucky’s godfather at his office on Hill Road in Bandra. He appeared to be in his mid-forties, a tall man who bore a passing resemblance to the yesteryear Bollywood star Navin Nischal. He had that same tranquil and dreamy look about him. His hair was dyed black, and he wore it slightly long. He was good-looking though his once sharp features were slowly running to fat, and I suspected it had to do with a fondness for booze. I mentally nicknamed him Monk.

  ‘My pleasure to have you here, Lala,’ he said, with a warm smile and a firm handshake. ‘I have heard of you from some good people, and had been wanting to meet you for a while now. Better late than never.’

  Monk spoke fluent English, and certainly did not sound like a seasoned stockbroker. An investment banker, perhaps.

  Having introduced us, Lucky left, saying he had some other work to attend to. I knew this was pre-planned.

  Monk and I discussed the markets. He wanted to know my view. I said I was bearish for the moment.

  ‘So is everybody on the street,’ Monk said. ‘I think we may have hit the bottom for the time being. Still, Asia will take a while to settle. I don’t see a bull market any time soon.’

  Monk’s interests went beyond markets. He followed politics closely, collected antique stuff and called himself a ‘serious amateur’ photographer. I discovered he was a good listener too, though I was not sure if he was genuinely interested in what I had to say or if it was just a pretence. ‘How did you then end up in this field, doing what you are doing?’ I wanted to ask him, but checked myself.

  I don’t know why, but I instinctively took a liking to him. Lucky was right. The man was too polished to be a stockbroker, let alone an operator involved in dodgy deals. I had heard GB mention him a few times, but he never aroused enough curiosity in me to find out more about him. From the little I knew about him, his speciality was mid-caps.

  It was late in the evening. Monk asked if he should call for some food. We finally settled for bhel from the vendor on the street below.

  ‘Good stuff, you won’t regret it,’ Monk said.

  He was right, except that it was a bit too spicy and made my eyes water.

  Over bhel and masala tea, Monk came to the point.

  ‘I understand you are pretty upset with Lucky, and I won’t blame you for that. Not Lucky’s fault, as you would have realized by now. I put him up to it. But that’s the way this market works. If I hadn’t poached your man, somebody else would have, sooner than later. Admit it, Lala, you were paying him a pittance for the kind of information he was giving you. But I am impressed by your resourcefulness in developing a contact like that,’ Monk said.

  Munching on bhel, he went on: ‘What has happened has happened. But I would like to have you for a friend, Lala. Of course, it is up to you, whether you feel the same way. And I want to make good your loss. So I have a proposal for you.’ He paused.

  I nodded.

  ‘Have you ever thought of having a broking card of your own, Lala?’ Monk asked.

  ‘To be honest, the thought has crossed my mind a few times. But I wonder if it is worth sinking in Rs 1 crore. Besides, there are other expenses too. You need an office, and then there is the cost of maintaining the office. Besides, I am doing well for myself without all those headaches. In short, I am happy in my present situation,’ I said.

  ‘Undoubtedly. But don’t you want to grow in this profession and swim with the big fish in the deep seas?’ Monk asked.

  ‘Perhaps, but that also calls for a sizeable investment, which I am not so confident about making at this point,’ I said. But I had a vague idea of what was coming.

  ‘Fortune favours the brave. Next year could be tough, but I see the opportunity for big money over the next two to three years. What if I were to fund half the cost of the BSE card and arrange for office space for a reasonable rent?’ Monk asked.

  ‘Sounds interesting, but I am no
t comfortable taking such a big favour,’ I said.

  ‘Fair enough. Treat my contribution as a soft loan. Repay me whenever you can . . . in one year, three years, five years . . . Is that good enough?’ he asked.

  ‘And what do I have to do in return?’ I asked.

  Monk leaned back and smiled.

  ‘You are quick . . . and blunt as well. Exactly what I had heard. Yes, in return you can do a few trades for me occasionally. Brokerage and margin money won’t be a problem. But don’t expect to survive purely on the business I give you,’ Monk said.

  Monk’s proposition was tempting. But I wondered how GB would take it if I told him I was planning to start out on my own.

  As though reading my thoughts, Monk asked me: ‘Are you thinking what Govind will have to say?’

  ‘Well . . . hmm . . . yes.’

  ‘Don’t trouble yourself over it. Govind will be happy for you. You have been with him for a while now, right? He gave you a break and you have vindicated his faith in you. What more can he ask for? And you can’t be indebted to him forever. It is time to move on, Lala. Think over it,’ Monk said.

  ‘Do you know him well?’ I asked Monk.

  ‘Not personally, but I know people who know him well enough,’ Monk replied, throwing me a knowing smile. I had no doubt that the Monk too did business for the big boys of the market.

  I did not have to deliberate much on Monk’s proposal. Two days later I called him to say I would take up his offer.

  ‘Happy to be doing business with you soon, Lala. Just one thing. At any point, if you decide to quit the business, I should have the right of first refusal to the card,’ he said. I thought that was perfectly reasonable.

  The same day, I told GB about my decision. I was certain he would have got to know about it even before I told him.

  He feigned surprise. ‘Oh! That’s good news indeed. I never realized you had made so much money to be starting your own broking business,’ he said.

  ‘Do you have to really do this, Govindbhai?’ I asked.

  ‘Do what, Lala?’ GB asked.

  ‘Pretending to know nothing when I think you pretty much know everything,’ I said.

  GB laughed.

  ‘You have become smart to the ways of this market, I must say. But one has to put on a façade at times. And here’s my advice to you, Lala, now that you are moving into a different league. Often, things are obvious enough for all to see, but, depending on the circumstance, it is not a bad thing to pretend otherwise,’ he said. ‘It’s a small industry still, we will keep seeing each other, Lala. Be in touch and don’t forget old friends.”’

  16

  Swimming in the Deep Sea

  In the last week of December 1997, I moved into a rented space in Nariman Bhavan building at Nariman Point. The landlord was known to Monk, and the rent was quite modest for the first six months. In fact, it seemed too good to be true. There was a rider, though. After six months, I would have to pay the regular market rent.

  Ideally, I would have preferred an office in the vicinity of Dalal Street so that I could hang around with friends after market hours. But Monk had suggested this place and I did not want to exploit his kindness. I hired a peon to manage the office, and was all set to take the plunge.

  Sometime in February 1998, Harshad Mehta sent me feelers through one of his confidants. I was told that Harshad was planning a comeback and had zeroed in on BPL, Videocon and Sterlite as the vehicles for his second innings. Harshad’s proximity to the promoters of these companies was by then common knowledge in market circles, and I was aware that he had already begun accumulating the stocks. The proposition made to me was simple: buy shares of these three companies according to Harshad’s instructions. It was a pure broking transaction, but I would get a higher commission than the market rate of 50-75 basis points. Of course, a juicy commission and an assured volume of trades were not the main reason for brokers’ eagerness to transact with Harshad; they were looking forward to bigger profits from front-running his trades.

  I had heard stories that Harshad would sometimes delay payment to his brokers, both for margin payment to the stock exchanges and for the shares he would take delivery of. Surely, Harshad knew his brokers were making easy money off him. Delaying payments was one way of making his brokers earn their keep. Often, he would offer shares instead of cash as collateral towards margin payment. Instead of paying Rs 100 as margin money to the broker (which the broker had to deposit with the stock exchange), Harshad would give the broker shares worth Rs 100. If a broker should demur, he would talk tough or turn on his charm, depending on the person he was dealing with.

  When the offer was made to me I was tempted to take it up. And, while I had not been in touch with Harshad for a long time, our relations were still cordial. Still, I was a bit miffed at his reaching out to me through his confidant instead of picking up the phone and talking to me directly. I gave the offer some thought and finally decided to turn it down. For one, I knew that the authorities would be keeping a hawk’s eye on Harshad this time around and do everything in their power to ensure that he did not become the force he was in 1992. That was the last time I heard from Harshad.

  The Sensex was on a tear in April, and so were shares of BPL, Videocon and Sterlite. Brokers who had signed up with Harshad were making money hand over fist, much to the envy of those who were not part of that circle. The party on Dalal Street would have continued for some more time but for the government’s decision to carry out nuclear tests at Pokhran, which caught investors off guard.

  Even before the government could finish savouring the public adulation for its feat, India was hit with economic sanctions. From the market’s perspective, it meant two things; FII money coming into India would dry up, and our companies would find it difficult to raise capital globally.

  Oddly, even as the overall market was in a downtrend, shares of BPL, Videocon and Sterlite continued to rise, thanks to relentless purchases by the Big Bull and his syndicate of brokers. Regularly, trading in the three stocks would be frozen for want of sellers. It was an open secret that Harshad was the driving force behind the spectacular surge in their prices. There was speculation that he may have once again managed to tap into the coffers of some government banks for his stock market operations. But Harshad was smart enough not to go anywhere near a bank this time. Instead, he got the promoters of the companies to bankroll his operations.

  By the first week of June, share prices of BPL had nearly trebled from four months ago, and those of Sterlite and Videocon had almost doubled. In the process, Harshad was also getting to enjoy what he loved doing – squeezing the bear traders who bet against him.

  Harshad avoided some of the mistakes he had made the last time, but one flaw remained – his desire to be in the limelight. Had BPL, Videocon and Sterlite shares fallen along with the rest of the market, it would have only seemed natural. But by pushing up their prices even as blue chips were not finding takers, Harshad managed to draw market attention to himself. Maybe he was trying to convince himself that he was still the Big Bull of old who could sway the market with his purchases.

  The bear operators tried to bring him down by short-selling the stocks. Each time, Harshad drove up the prices and forced them to cover their positions at a loss. This went on for some time until the bears decided to back off and wait for an opportune time to hit back.

  Despite the eye-popping gains in these stocks, fund managers were not willing to touch BPL, Videocon and Sterlite shares for fear of being associated with Harshad. This meant the only buyers for these stocks were Harshad and his group of brokers. So long as the prices kept rising, it was not difficult for Harshad & Co to keep carrying forward their positions to the next settlement. Still, at some point, the bulls had to pause for breath. And indeed they did, and the three stocks stopped in their tracks, staying level for about a week.

  The bears now smelt blood, aware that the bulls were finding it difficult to book profits without depressing prices. In
the middle of June, the three stocks started tumbling rapidly. Somebody in the syndicate had to liquidate his positions under duress, and all hell broke loose for Harshad and gang. The same stocks that had seemed to be defying the laws of stock market gravity till a couple of weeks back were now obeying another law of stock market physics – the faster the climb, the harder the fall.

  Trading in the stocks was frozen on many days for want of buyers, and their free fall continued. There were many theories – ranging from the ridiculous to the plausible – as to what may have triggered their collapse. One was that Harshad’s wife too had been holding shares in them and had decided to sell some of her holdings to fund the renovation of their home. The broker selling the shares took this as a sign that the Big Bull was looking to exit the stocks, and this spread panic in the bull camp, which then started cashing out. I had heard a variation of the same theory as one of the reasons for the end of the bull market in 1992.

  The other theory was that the bear cartel had managed to convince some fund managers holding shares of the three companies to sell out. These fund managers sold a sizeable chunk of the stocks during the week. Harshad kept buying the shares thinking it was short-sellers at the other end of the trade, whom he could squeeze at the end of the settlement cycle.

  A third theory was that Harshad’s rivals managed to smuggle out shares of BPL, Videocon and Sterlite from the BSE clearing house (demat had not picked up in a big way then) and had sold them in the market, triggering a crash in the stocks. They then bought the shares from the market at lower prices to deposit them back in the clearing house.

  Years later, at our evening out, a dealer friend of mine bragged about how he was instrumental in bursting the BPL-Videocon-Sterlite bubble. One of the private firms through which Harshad was building positions in the three stocks was a client of the brokerage where my friend worked. He had a suspicion that the private firm’s purchases were on behalf of Harshad. As the purchases kept getting bigger, my friend became wary, and insisted that his client deposit cash towards margin obligations instead of shares of the three companies. The firm kept buying time by offering to give more business to my friend’s brokerage firm. But once the prices stagnated, my friend sensed trouble ahead and threatened to liquidate the positions unless the margin money was deposited. But the Harshad firm stopped taking his calls. Left with no option, my friend liquidated the positions in BPL. That turned out to be the beginning of Harshad’s problems. When the BPL stock fell sharply, other brokers with positions in that stock too began booking profits to be on the safer side. This then set off a chain reaction, as the selling spread to Videocon and Sterlite too. At some point, Harshad’s financiers must have become averse to putting up more cash, and once that happened there was no way the share prices could be supported.