The pundits, who were predicting that the Securities Transaction Tax (STT) would dry up trading volumes in the short run, were stumped on Friday by the soaring Sensex. The benchmark index shot up 91 points — its highest since July 9, a day after the union budget. Trading volumes were indeed a tad lower, and as many as 338 traded scrips on the NSE declined in value even while 436 scrips advanced. This suggests that market sentiment isn’t exactly bullish across the board. The buying is led by foreign investors (including many hedge funds), a large industry house that’s very active in the market these days, and the usual flock of day traders who build volumes by jumping on to the bandwagon whenever there is a rally.
Investors are clearly not ignoring ominous signals such as high inflation, the unabated rise in oil prices and the bickering over policy issues. They are merely front-running stocks that are most likely to attract foreign funds that are getting ready to invest in India. These include the giant, $166-billion CalPERS (California Public Employees Retirement System) and Fidelity Investments, who have stayed away from the Indian market so far. If Fidelity does launch the reported ‘blitzkrieg’ to educate investors and expand the investor base, this too will enhance the value of Indian stocks. That the SEBI is clearing FII registration in under a week, potentially increasing the pool of foreign funds that could flow into India, is another bullish factor. These developments are perfect for the FM to make a confident pitch for investment in India — if only the Left Parties would tone down their din of opposition.
On the subject of bullishness based on anticipated foreign buying, the large industry house is slowly expanding its control several brokerage firms. One investigative agency found that on May 17, when the market crashed, this group was caught on the wrong foot and helped price recovery through aggressive buying. It transferred around Rs 6.5 crore to a brokerage firm that is fairly visible on TV channels. This firm merely acted as a conduit to forward money to three other medium sized brokerages that bought shares on behalf of the industry group. But that’s not all. For the last few months, there have been rumours about payment problems faced by another high profile brokerage with a large investor base. According to the bazaar buzz, this firm, which claims special expertise in research-driven recommendation and value-based buying, was having big problems with its large banking portfolio that suddenly lost a lot of its value. All of a sudden, the rumours stopped and it is business as usual. We now learn that it has been ‘bailed out’ by the big industry house. The group dictates its business operations through its own investment expert. The five firms indicated above are just a part of the wide network of investment fronts for the group’s extensive capital market presence.
Meanwhile, the stock prices of several companies of this group have been zooming up in anticipation of substantial investment by CalPERS. Its top executive has been assiduously wooing the CalPERS top brass to convince the investment team about its growth prospects. Reports from company circles suggest that CalPERS is set to acquire a 3.5 per cent stake in a high energy scrip. Only time will tell whether CalPERS actually makes the investment or if the rumour was just a ploy to push up the stock price. What is however certain is that the group is now able to spread its message through a variety of analysts and media outlets controlled or influenced by it.
The Securities Appellate Tribunal (SAT) may have generously reduced the penalties payable by the notorious Roofit Industries and Sunearth Ceramics, but the two Motwani group companies continue to strike terror among investors, fixed depositors, bankers and private financiers through continued defaults. They are understood to have defaulted on inter-corporate borrowings from prominent companies leading to a flurry of new arrest warrants against the promoters. Media reports suggest that their short-term borrowings alone could be in the region of Rs 1,000 cr. This does not include the loans from banks and financial institutions, which exceed Rs 500 cr. The lenders who include IDBI, SBI, LIC and ICICI Bank are on the backfoot because their loans could be completely jeopardised if the companies seek protection from the Board of Industrial and Financial Reconstruction. Given the extent to which the two companies have reneged on their promises, the action of SAT judges in reducing their penalties is truly shocking. Is it any wonder that India’s investor population is not growing?