Bulls, Bears and Other Beasts Page 4

  ‘If you are looking to buy Dr Reddy’s, I have a much better rate for you . . . oh . . . not interested . . . well, okay . . . sorry . . . no, but I thought . . . okay . . . I am really sorry,’ said Owl, keeping the receiver down. A similar conversation followed on his next call. It had not occurred to Owl that I had played a trick on him.

  Two days later I did something similar. This time, realization dawned on Owl that I could be misleading him. He must have reported everything to his masters, for soon one more person was assigned to tail me. This time I dialled four brokers at random before placing the right call.

  Owl and the other spy seemed to have had enough of the abuses that came their way from calling the wrong brokers. The AS-PS clique left me in peace after that.

  Or rather, I thought so. But I was mistaken. Outwardly, their hostility towards me ceased somewhat, and once in a while even the usually gruff PS would greet me with a smile in the ring. I felt the past was forgiven and forgotten. Little did I know that the duo was patiently waiting for an opportunity to get back at me. And, one day, I myself gifted them the chance they had been looking for.

  It was a fairly busy noon when Owl walked up to me inquiring about the rates I was offering for Apollo Tyres. We had dealt with each other a few times after the hotline snooping affair, and things had gone off smoothly. I had no reason to suspect anything. I quoted my rate; Owl said he wanted to sell 500 shares. I bought them off him. He asked the rate for another 500, and I gave him the same quote. He then said he wanted to sell some more. I instinctively felt Owl was trying to pull a fast one on me. I quoted a lousy rate so that he would walk away, but to my surprise he sold me another 500 shares, and asked for still another quote. I quoted an even lousier rate, increasing the spread sharply so that it looked obvious that I was trying to blatantly overcharge him.

  I was expecting him to make some scathing remarks and walk away in a huff. But he again surprised me.

  ‘Arre Lala, you are trying to kill me by quoting such rates,’ he whined.

  ‘It is up to you whether you want to take it or not,’ I said disdainfully.

  ‘You have become a big man, Lala, but that does not give you the right to treat small jobbers like me with contempt,’ he protested.

  I wanted to walk away, but the fellow wouldn’t let me. Even though I had become a bit more tolerant of him lately, I certainly had no love lost for him.

  ‘My rate stands, take it or leave it,’ I said.

  ‘The spread you have quoted is so wide that somebody could sell 50,000 shares of Apollo Tyres at this price,’ Owl said.

  By now I was really annoyed with him, and decided to insult him outright so that he would not prolong the discussion.

  ‘50,000 shares eh? Well, if you have them on you, sell now. You have a buyer in me,’ I said, fully aware that Owl did not deal in big quantities.

  ‘Don’t be so arrogant, Lala. I know you don’t have the capacity to buy 50,000 shares. And you think you can make fun of me like that?’ Owl said angrily.

  I was pleased with myself now that I had managed to get him worked up. Somewhere during our conversation I recalled how he had managed to snatch at least two good deals from me. The memory of those losses made me want to inflict pain on him.

  ‘You don’t worry about whether I have the capacity to buy 50,000 Apollo Tyres or not; your concern should be whether you have those many shares to sell,’ I said smugly.

  I did not realize he was playing to a plan.

  ‘Fine, Lala, I accept your offer. Sold to you, 50,000 Apollo Tyres,’ he said, and quickly whipped out his sauda pad, noting down the deal.

  I was stumped. It was true that I did not have the capacity to deal in 50,000 shares. While my boss had not specified any position limits, it was understood that I would not take excessive risks. After all, if the jobber defaults on his obligation, the broker has to make up for it.

  I had taken Owl on because I knew that he did not deal in such large quantities either. Besides, it is common on the floor for traders to talk down each other so as to be able to get a competitive rate.

  ‘Hey, wait . . . don’t joke with such large numbers,’ I said, realizing how perilous the situation could become, and hoping that Owl was just fooling around.

  It was now Owl’s turn to hurl barbs at me.

  ‘Why, what happened, big man . . . did you just wet your pants at the thought of 50,000 shares? The way you were talking, I felt it was loose change for you,’ he said, barely trying to conceal his glee.

  The only way out of this mess was to claim the deal never happened, or that Owl had misheard me as having said 50,000 when I had actually said 500. But there were witnesses to our trade; Owl had ensured that. If I backed out of the deal, my reputation would take a knock and others would become less trustful of me.

  Another option was to grovel before Owl and request him to cancel the trade. But my pride would not allow that. And even if I did plead with him, he would first savour my discomfort and then still refuse me. If I stood by the deal, there was a high probability of my having to take a loss beyond my capacity. Every one rupee of loss meant I would be out of pocket by Rs 50,000.

  I was sure that Owl was fronting for his masters, who seemed determined to force me out of this profession in disgrace. As of now, they had won half the battle.

  The settlement was about a week away, and even if I did manage to get out of my position in Apollo Tyres, it was likely to be at a loss. Knowing AS-PS’s hatred for me, they would spread the word that I was desperate to offload 50,000 shares of Apollo Tyres. Anybody looking to buy from me would then try to beat me down on the price. I had nobody to blame for this situation but myself.

  Later that day I bumped into AS as I was leaving the ring for my office.

  ‘I understand you have a big lot of Apollo Tyres to sell. Can I be of help?’ he asked with mock seriousness.

  I tried to ignore him, but PS did not give up so easily.

  ‘Well, Lala, we warned you enough times not to play around with us. And I had promised you that I would make you pay. I hope you have already thought of an alternative profession for after next week,’ he said as he went away.

  My situation appeared to be beyond salvage. I tried to picture various scenarios. The best-case scenario would be my making a fat profit on the trade. The chances of that looked next to impossible, especially since my foes would have spread the word that there was a desperate seller hawking 50,000 shares. The next-best scenario was to get out of the position at no-profit-no-loss, but with a lesson learnt in humility. The chances of that too appeared slim. A loss of even one rupee per share would be painful, but I could still prevail on my boss to keep me in the job and work off my debt. A loss of two rupees, and I could not be sure of my job, though I could still plead for leniency; a loss of more than two rupees, and I would have to look for a job outside the stock market; no broker would be willing to hire me after hearing about my blunder.

  I wondered if I should ask Bunty to help me out by buying the block for his fund because I had still got it at a competitive price and would gladly have sold it to him at the same price. The problem here was that Bunty’s fund did not have any previous exposure to Apollo Tyres, and Bunty would find it difficult convincing his bosses about his sudden interest in the stock.

  My boss was out of town and was not expected till three days later. That gave me some breathing space. I was not sure how he would react if word about my reckless trade got around to him. He was by nature a rather level-headed person, but just like the stock market, people can be irrational at an inopportune moment.

  I slept fitfully that night, beset by nightmares of being chased out of the stock exchange building with just my undergarments on.

  I had to drag myself to work the following day. I was unsure whether I should be going into the ring at all. With the Apollo trade playing on my mind, I was likely to make more mistakes and aggravate an already bad situation. I thought over it for a while and took a decision: I w
ould try to first trade my way out of Apollo and only then take up other deals. I tried a bit of self-motivation so that I did not betray my desperation and make myself vulnerable to more bad deals. Maybe this was a test by God to make me a better professional, I thought, as I walked into the ring.

  I inquired about the rates for Apollo Tyres. To my dismay, the prices on offer were low, and so were the volumes. I tried trading some other stocks, but my mind kept going back to Apollo. I again checked the rates, but they were still not in my favour. I decided to hold on to my position for one more day before making up my mind.

  With 10 minutes left for the day’s session to end, Sharma casually came up to me. We knew each other by face, but had not interacted before. The outspoken and jovial Sharma was known to be part of Harshad Mehta’s inner circle. I was a bit surprised when he approached me, considering we had never spoken before.

  ‘How goes things, Lala?’ he asked.

  ‘Surviving,’ I said, forcing a smile.

  ‘Hmm . . . we all are, in one way or another,’ he said, eyeing me closely.

  To what do I owe the honour of your accosting me, I wanted to ask him.

  We sized each other up for a few seconds. Then Sharma spoke: ‘I would like to buy some stock off you.’

  I immediately realized he knew about my Apollo Tyres trade. No client ever reveals his hand before asking for a quote.

  ‘Which one?’ I asked, knowing the answer fully well.

  ‘Come off it, Lala, you know which one, else I would have asked for a quote first,’ he said.

  ‘Since you know where I stand, it goes without saying that you already have a price in mind,’ I said, trying to sound dignified.

  ‘You are right, let’s deal straight. What did you buy it for?’ he asked.

  I told him the right price, aware that he knew it.

  ‘Okay, I will buy it from you at ten paise below your cost price,’ he said.

  ‘That’s generous on your part, knowing the situation I am in,’ I said, and then wondered if I had given myself away.

  ‘Let me put it this way. Some people would like to see you in trouble, and we would like to deny them that satisfaction. Besides, we are buyers in the stock if the price is reasonable,’ Sharma said.

  ‘Who is the “we”?’ I asked, just to confirm my conclusion about who could be behind this gift from heaven.

  ‘Too clever by half, aren’t you, Lala? I take it that you are sufficiently informed about who I work for,’ Sharma said.

  ‘Even if it is unintended generosity, why not go the whole way and buy my position at cost?’ I asked.

  ‘So that you realize there is a cost to stupidity. Ten paise is no big deal. But if you are let off the hook clean, you could get into bigger trouble next time,’ Sharma said, noting down the deal in his sauda pad.

  ‘Am I supposed to be grateful for this act of kindness?’ I asked.

  ‘Well, that’s up to you,’ Sharma said, walking away.

  The following day, Owl approached me, saying he was willing to buy back the Apollo Tyres position at three rupees below my selling price.

  ‘We all make mistakes, Lala, but I don’t want somebody to be out of a job because of his immaturity,’ Owl said, perhaps hoping that I would beg him for a better price.

  ‘That’s very magnanimous of you,’ I said, and leaning forward, whispered into his ear where he could shove up that offer.

  But for AS-PS themselves having made a formidable enemy in my unlikely benefactor, I would have been in serious trouble. The loss of Rs 5,000 pinched for about a month, but I kept telling myself that things could have been much worse.

  5

  The Republic of Dalal Street

  The Dalal Street of the 1980s and early 1990s was the financial market equivalent of the Wild West. Insider trading by companies, in collusion with brokers and market operators, was rampant. In fact, it did not even strike the companies that their trading practices were illegal as there was nothing in the law that forbade them from keeping up these practices.

  As for the brokers, many were known to regularly front-run their big clients or cheat on the rates at which they would execute orders in the ring. Brokers would confirm their trades only at the end of the day. So they would claim to have sold at prices close to the lowest price of the day and bought at levels close to the highest price of the day. This way, they could pay less money to the client who sold shares through them and take more money from clients who bought shares from them.

  With the entry of the National Stock Exchange (NSE) and the introduction of screen-based trading in 1994, this practice ended, as clients could verify what prices their shares were traded for.

  In the pre-NSE days too, brokers had to adhere to rules specified by the stock exchanges. But in reality, these rules were frequently violated. Non-payment of margin money to the exchanges, violations of trading restrictions, and reluctance to submit data on prices and volumes in a transparent manner were common. BSE, for instance, was supposed to audit the books of broker members but this was rarely done, and even when it was, it was a peremptory exercise. There was no proper mechanism to address the grievances of investors.

  Influential brokers got a free run because the governing board of the stock exchange was packed with broker members. On paper, the stock exchange was answerable to the Ministry of Finance, but the government nominees rarely attended meetings of the governing board. In effect, the exchange was controlled by a clique of influential brokers, to such an extent that many joked that BSE was an abbreviation for Brokers’ Stock Exchange and not of Bombay Stock Exchange. Naturally, disciplinary action against erring members was rare. Occasionally a broker would be penalized, but the fines were insignificant.

  Cartel wars in a stock were quite common at the time, and usually saw the Marwari brokers arrayed on one side and the Gujarati brokers on the other. One group would take a bullish view on a stock, and the other would try its best to hammer the price of that stock down. Having friends in the stock exchange governing board or in the company helped tilt the balance of power. Bulls could be caught on the wrong foot if the stock exchange suddenly increased the margin on buy trades, and bears could be trapped by a sudden wave of buying, usually by players funded by company promoters. India was still a closed economy then, and stock market players did not look beyond the stocks whose companies they had an interest (usually vested) in.

  My jobbing skills were steadily improving, and in a good month I would take home close to Rs 10,000.

  Occasionally I ended up annoying some of the big players of the game. Once Manubhai Manek asked me to buy a block of shares of a certain stock. It so happened that his son-in-law, who sat a few offices away from Manek’s, wanted to sell a block of that same lot. I got him the block he wanted, and charged him the usual brokerage of 1.5 per cent.

  A few days later Manubhai learnt the identity of the seller and was miffed with me. ‘You could have told me that my son-in-law was looking to sell the block,’ he told me when we bumped into each other in the ring. I grinned at him, but Manubhai was not amused.

  ‘You should be called chakku (knife); you could slit somebody’s throat to earn a commission,’ he said.

  But only a week later he made me an offer when we met in the ring.

  ‘Hey chakku, what is your boss paying you?’ he asked.

  If it had been anybody else I might have asked him to get lost. But this was Manubhai himself, whom I had managed to get on the wrong side of once. Twice would be asking for trouble.

  ‘Rs 5,000 fixed, plus jobbing commissions,’ I said.

  ‘You are worth much more. I will pay you Rs 15,000 plus jobbing commissions; join me from next month,’ he said.

  Perhaps it was the tone of the proposal that put me off. It sounded more like an order than an offer. But then, Manubhai was never really known to charm people. ‘I am quite happy with what my boss is paying me right now. Besides, he gave me a job when nobody else was willing to take me on. I can’t walk o
ut on him just for some extra money,’ I said.

  He did not realize that had he been a bit more tactful, I could have easily been persuaded to cross over. After all, who would not want to work with one of the biggest names on Dalal Street? But if he thought he could buy me out with just money, he was mistaken.

  Manubhai was a bit taken aback by my answer. I guess he was not used to being rebuffed by a jobber barely a year into the profession.

  ‘Good to hear that you still treasure old-world values like loyalty, otherwise everybody is out here to get rich quick by whatever means possible. If ever you are in need of a job, you can always call on me,’ he said, walking away without waiting for my response.

  Soon after that he gave me a couple of decent-sized orders, which I managed to execute well. But more important than the commissions they fetched me was the relief I felt in knowing that he still thought sufficiently well of me to give me business.

  6

  The Rise of Harshad and the Equity Cult

  But for the general elections in November, which saw the defeat of the Congress and brought the Janata Dal-led national coalition to power, 1989, as well as the first half of 1990, saw very little activity on Dalal Street.

  V. P. Singh had come to power with many a promise, but was caught up in trying to keep the coalition partners happy. Student agitations across the country, and suicide attempts by a few students in the wake of the Mandal Commission report on reservations for the backward classes undermined Singh’s position within his own party. By then, the term ‘policy paralysis’ had not been coined, and the stock market appeared to be existing in a cocoon of its own, unmindful of the economy as a whole. Investors did not concern themselves beyond policies that impacted specific companies or sectors.