Last week was a good example of what happens when the media covered the stock market exactly like the Salman Khan-Aishwarya Rai tapes. Media one-upmanship went overboard and journalists had no qualms about dragging the Prime Minister’s Office (PMO) into their speculative reports. Several TV reports made confident claims about PMO sources informing them of specific phone calls, emergency meetings with the enforcement agencies and the Mumbai visit of the Finance Ministry Joint Secretary, U.K. Sinha. All these reports were false or grossly exaggerated. Several journalists probably hoodwinked their bosses and claimed to have checked with the PMO, confident that leading newspaper and television reports had the correct facts. The leaders were clearly guilty of concocting stories. The PMO has written to several publications and TV stations asking for an internal investigation and explanation. Is that enough? Over the last few years, the capital market regulator has asked Finance Ministry bureaucrats and Oil Ministry mandarins (more recently) to be circumspect in their public utterances on price sensitive issues. The same discipline needs to apply to the media, especially when it involves the highest executive office in the country. Otherwise, media-generated hysteria will cause more damage to investors than price manipulation by scamsters.
The ferocity of the bull run had indeed caused worries about excessive stock price manipulation. But there is nothing in the market to warrant warlike action from the government or its regulators. What is needed is targeted action against firms whose dubious dealings have been carefully identified and tracked. The question is, was all the reportage claiming a multi-agency crackdown just over-enthusiastic reporting, or was the media manipulated? The benchmark BSE Sensex was rising at an unsustainable 100 points everyday and ripe for a correction. But did someone make a killing by engineering a sharper and swifter fall and controlling its timing? Clearly this would have to be someone with enough of government and political connections to appear credible.
Nostalgic About badla?
The timing couldn’t be worse. On a day when stock prices in India were plummeting and the Sensex had registered its highest fall since May 17, 2004, Sebi Chairman M. Damodaran was in New York, promising to balance opportunities for the bulls and bears by permitting short sales. Many brokers immediately saw visions of a return of the badla system in the Sebi chief’s words. One of them proclaimed that the ‘‘badla’’ system (carry forward) ensured a fair market, especially since it allowed ‘‘undha badla’’ (backwardation). Clearly, the nostalgia factor makes people forget the rampant price manipulation and bear traps that were possible under that system as also the frequent broker defaults. Having said that, Sebi must explain why it still hasn’t managed to put in place a workable lending-and-borrowing mechanism, which is a necessary condition for permitting short-selling in a modern market. In fact, Sebi must also examine how its margin trading system only seems to work for large brokers with access to a line of credit from banks and finance companies.
While the possibility of another stock market scam sent the market into a tizzy last Thursday, the government has started the process of winding up Scam 1992 — or the Harshad Mehta Scam. The Custodian appointed under the Special Courts Act, which was specially promulgated to expedite the scam investigation failed in its objective. While the Scam-related litigation continues to drag through the Special Court and meander into the Supreme Court, the Custodian is sitting on over a thousand crore of shares and property seized from the scam accused. After a decade of inaction, the Custodian had stepped up the process of liquidating scam-related assets in the last couple of years. It has sold the cars and offices of Harshad Mehta as well as apartments belonging to some officials. But now, there is a deadline. The Finance Ministry is understood to have asked the Custodian for a plan to wind up the office and complete its task by the end of December 2005. If only there were a similarly-simple way to close the never-ending litigations.
Alok, an HDFC Bank depositor, makes an interesting point. He says, cheques of all private and foreign banks are credited to depositor accounts only three days after they are cleared and debited to the paying account. Yet, when it comes to a home loan cheque that has to go out of his account on the 18th of every month, it gets debited from his account by 10 am on the 19th of every month. Clearly, banking technology and systems work extra fast even when the cheques are small but the payee is a bank. They only take three working days while crediting it to individuals. How much longer will the Reserve Bank allow banks the luxury of discriminating against retail depositors? The banking regulator should learn a few lessons from the capital market which copes with trading turnover in excess of Rs 30,000 crore a day.