by Santosh Nair
Almost all the brokers who did trades for Harshad lost heavily as they were unable to sell the shares they had loaded up on, there being no buyers. They may have made good money in the first few months as the shares were rallying, but the crash put many of them out of business. BSE had to keep its systems open all night to allow insertion of trades that allowed the cash-strapped bulls to sell their positions to brokers who were in turn funded by the companies to avoid a payment default on the exchange.
As I was grappling with my trading losses because of the overall market downtrend came another bit of bad news, this time from the home front.
‘Lala, I get sudden attacks of dizziness these days, and my cough too has not fully subsided even after medicines,’ my father told me one morning as I was heading for work. Bauji was pushing seventy, but in very good health for somebody his age. The same evening I accompanied him to our family doctor, who recommended a CT scan and referred us to a pulmonologist.
A few days later, I was sitting across the doctor as he studied the test reports. I could sense he had some unpleasant news to give and that he was struggling to find the right words and break it to me as gently as he could.
‘I am afraid I have some bad news for you, Mr Lalchand . . . Your father doesn’t have much time left,’ he said. ‘It is cancer of the lung . . . now in its final stage.’ The words hit me like a punch in the chest; I was overcome by a sudden wave of breathlessness and was too stunned to respond.
‘This . . . this cannot be . . . my father is very healthy, and except for the recent cough and the occasional dizziness, he never had much to complain about,’ I told the doctor when I finally gathered my wits.
‘Often, the disease spreads across the body without a warning and is discovered very late. I am sorry, but there is little that can be done at this stage,’ the doctor said, trying to sound as sympathetic as he could.
‘How much time does he have?’ I asked.
‘At best, two months,’ the doctor replied.
‘Is there anything at all that can be done?’ I asked.
‘If your question is whether spending money on treatment will help, I would say that you could lessen the pain a bit, but not necessarily prolong his life,’ the doctor said.
‘If I can’t save his life, I shall do everything within my power to ensure that he suffers as little as possible in his final days,’ I said.
‘But let me warn you that the treatment will be expensive, and will not make much difference to the final outcome,’ the doctor said.
He told me that the drugs and chemotherapy could set me back by nearly Rs 10 lakh. I had reached a stage where Rs 10 lakh was affordable, but the incident also showed up to me the limitations of money. Yet I was thankful to God for helping me get to a position that allowed me to make things easier for my father in his final days.
The difficult part now was to get my father to agree to chemotherapy. I had told him he was absolutely fine. Naturally, he would ask why he had to undergo treatment if there was nothing wrong with him. Bina and I finally managed to convince him that he had to take the medicines and undergo treatment as there was an infection in his lung and it could be cured faster this way. We never mentioned the word chemotherapy to him.
I booked him into one of the opulent, sea-facing rooms in Breach Candy, and requested the doctors that on no account should he get to know of his ailment. His condition had suddenly taken a turn for the worse and we had to wheel him into his room. I had this sinking feeling that he may not return home.
Surprisingly, he responded well to the first round of treatment, and was able to walk out of the hospital. We did not tell Ma about his condition, and I did not want to tell my brother and sister either. None of them would have been able to handle the news, and my father would have learnt from their faces that he was not going to recover.
I was under tremendous strain those two months. Not only did I have to accompany my father for his treatment, I was also worried that he may get to know about his illness. I knew that at the chemo sessions he would be getting to meet other cancer patients.
One day as we were having dinner, my father suddenly said: ‘Cancer is such a dreadful disease.’
I almost choked on my food.
Warily, I asked him: ‘Why do you say that?’
‘You know, Lala, there were nine of us at the hospital today waiting for treatment. Seven in the group were suffering from cancer. I and another man from Malad were the only ones who did not have cancer. That is when I realized I should not complain to God about anything,’ he said. There was little solace in the realization that I was not the only one who was lying to a dying parent.
The market continued to drift lower but I was too distracted to be able to focus my energies on trading. Sensing that my lack of concentration was leading to errors on my part, I kept my positions to the minimum. It was nearly two months since Bauji’s treatment had begun, and he was making good progress. In fact, he had become healthier, despite the doctor’s verdict that there was no possibility of a complete recovery, I was hoping against hope that he would pull through.
We had another scare, though. Father had to get an X-ray done every time before his chemotherapy. One of the assistants at the lab happened to be the son of Bauji’s friend. He asked my father why he was getting X-rays done regularly. My father said he was undergoing treatment for a lung infection. The friend’s son’s intention may have been good, but he ended up causing me a lot of anxiety that day.
‘You do not take regular X-rays for treating a lung infection, maybe your doctor is making a fool of you,’ he said, and referred my father to a lung specialist. Thankfully, the lung specialist was available for consultation only in the evenings. After the X-ray was done, my father called me to say he would be consulting the lung specialist recommended by his friend’s son. I lost my temper and scolded him for listening to people who had no knowledge about these things.
‘There is no need to see any other doctor, just get back home,’ I told him. He agreed, but my trader’s instinct told me I had ended up making him suspicious.
I immediately called Bina and asked her to have a word with him. Sure enough, he had made up his mind to see that doctor. Bina told him it was a good idea, and managed to get the doctor’s contact details out of him. Somehow, I managed to get a call through to the doctor before he could see my father.
‘Doctor, I know this may be against your ethics, but my father Mr – is coming to see you for a second opinion. He is suffering from cancer and does not have much time left. I have so far managed to conceal the fact from him. But if you were to diagnose him correctly today, he will lose his willpower to battle the disease. My humble request is that you do not tell him his true condition at any cost,’ I told him.
God bless the doctor, he agreed to play along.
That evening my father was even more cheerful at the dinner table.
‘I am sorry, Lala, but I did go to the doctor after all, just for my peace of mind,’ he said.
‘That’s okay. What did the doctor have to say?’ I asked him in an innocent tone.
‘Well, he said it was a minor problem, and prescribed me a cough syrup. I picked it up on the way,’ he told me.
Bina and I were relieved, but the stress of those few hours was unimaginable. I was glad I had not taken up any big positions earlier in the day.
The downtrend in the market continued, and the reasons were both internal and external. The currency crisis in Southeast Asia the previous year had crippled the economies of the Asian tigers like South Korea, Indonesia and Thailand, which had been growing at a scorching pace until then. Japan continued to be in recession, and because of the problems in Asia, Russia was hit hard by a slump in demand for its two key exports, crude oil and non-ferrous metals. In mid-August, another global crisis erupted as Russia devalued the rouble, defaulted on domestic payments and suspended interest payment on foreign loans. This further alarmed global money managers, who were still dealing with the
aftershocks of the previous year’s Asian currency crisis.
A further strain on liquidity was the crisis at Long Term Capital Management (LTCM), one of the largest US hedge funds. LTCM suffered a colossal loss on its bets in Russia and had to be bailed out with a $3.5 billion package put together by the US Federal Reserve and a consortium of top US financial institutions.
The Indian economy was on the mend after a steep decline in GDP growth the previous year, but inflation was a headache for much of the year, peaking at 8.8 per cent in September. At one point, onion prices climbed to Rs 60 a kg and tomato prices to Rs 40 a kg, which would be the equivalent of at least Rs 240 and Rs 160, respectively, at today’s prices adjusted for inflation. Of course, the problem of inflation was not chronic back then, as it is now.
It was a bleak Diwali on Dalal Street that year as the index struggled to stay above 3,000. Among the worst hit blue chips was Tata Motors (TELCO), which saw its losses mount because of the sluggish economy. From a high of Rs 354 at the start of the calendar year, the stock crashed to Rs 98 by Diwali. Some brokers declared they would buy it only when the price touched Rs 50, a level they were confident they would see by end-December. These were the same brokers who, when the stock was at Rs 150, said they would buy it only when the price fell to Rs 100. They never got another chance. By new year’s eve, the stock was quoting at Rs 170.
In November, the Companies Act was amended to include clauses for buyback of shares by companies, and SEBI notified the guidelines. The market had been eagerly looking forward to it, in the hope that it would be a big sentiment booster. When the rules were finally announced after a wait of more than eighteen months since P. Chidambaram first mentioned it, the market reacted with indifference. Given the overall downturn, it was unlikely that companies would be in any rush to buy back their shares.
Amid the general gloom in the market that year, one man’s stars were rapidly on the rise. Thirty-seven-year-old Ketan Parekh, who hailed from a family of traditional stockbrokers, was an operator of repute, but yet to be counted among the A-listers of Dalal Street. He was quite active on CSE too, where the ITC stock was seen to be his favourite quarry. The previous year, his rivals had spread rumours of his alleged suicide on a Friday – the last day of settlement on BSE – to create panic among his associates so they would sell off their positions in ITC. The rumours seemed plausible, as Ketan was said to be facing difficulties in meeting his payment obligations to the stock exchange. By the time the Ketan camp managed to kill the rumours, the damage was done. It was not a crippling setback, but Ketan had to take a knock on his profits in that settlement cycle.
In May 1998, Ketan bought ACC shares in a big way. The bet backfired badly as FIIs turned bearish in general, following the Pokhran blasts. Instead of selling out his positions in ACC, Ketan bought more of the stock, convinced that his purchases could change sentiment for it. It was a terrible gamble. FIIs sold ACC shares, and Ketan eventually had to sell his position at a loss.
The ACC debacle was a talking point in the market, and most market participants, including I, thought Ketan would be out of action for a while. But what he lost in ACC was more than made up for by the killing he had made in shares of Chennai-based Pentafour Software.
17
A New Bull Market with a New Big Bull
Indian IT companies were getting popular with investors, but it would be some more months before the mania of the scale seen in the US was replicated here. Shares of leading Indian IT companies like Infosys, Satyam and Wipro had a decent run in anticipation of bumper earnings for at least the next couple of years.
At the heart of this unexpected bonanza for the industry was the Y2K bug. To save on memory space, the internal clocks of computers provided dates with six digits – two for the day, two for the month, and two for the year. As there were no digits provided for a millennium change, it was feared that on 1 January 2000 computer systems across the world would automatically reset, unable to figure the ‘00’ at the end of the date line. Fixing the problem called for massive numbers of software code writers to screen millions of lines of computer code and correct the fault.
All of a sudden the spotlight was on India. We were the only country that could provide the volume of manpower required for the job at a fraction of what it would cost in the developed world. Another unexpected stroke of fortune for India was the spurt in undersea fibre-optic cable lines between India and the US. Using fibre-optic cable-connected workstations, software engineers in Hyderabad could fix the codes of computer systems of companies in the US to make them Y2K-ready. This marked the beginning of the great outsourcing wave that would continue for many years to come.
Amid all this hand-wringing over the approaching Y2K doom, the great dotcom boom in the US was gaining strength with each passing day. ‘Internet’ had become the buzzword from the mid-1990s onwards, spurred by a belief that the advent of the web marked a new dawn in human civilization and would radically change life on earth, the way the invention of the wheel did. Given the investor frenzy for anything remotely connected with the Internet, many dotcom start-ups in the US managed to raise capital at outrageous valuations, despite their flaky business models that held little promise of generating meaningful profits in the foreseeable future.
None of the major Indian IT companies were dotcom players, but looked far more solid because of their pipeline of Y2K-related orders. Shares of Infosys, Wipro and Satyam, the top three listed IT services firms, were already in demand with institutional investors. The interest was spilling over to some of the second-rung companies in the sector now.
Ketan’s choice of Pentafour Software to ride the IT wave was intriguing. The company, which would later be renamed Pentamedia Graphics, was struggling financially; there was talk about it having defaulted on its fixed deposits. The poor market perception about the Pentafour management did not help either. Let alone fund managers, even self-respecting traders chose to keep away from the stock. But all that was before Ketan took an interest in the stock.
To me, Ketan’s pick made sense. As the company was in trouble, the stock was available cheap; I could see that would put Ketan in a position to dictate terms to the management. Pentafour wanted to project itself as an attractive buy to institutional investors. Market perception about its management could not be changed overnight, but a jump in its stock price would certainly get fund managers interested. And, as a surge in price alone would not help, trading volumes had to be good enough for fund houses to be able to buy and sell the shares with ease.
In early 1998, the stock was quoting at around Rs 150, its daily volumes on BSE at barely 5,000. Ketan first drove up the price, which in turn attracted traders to the stock. By the end of May, Pentafour shares had soared to Rs 1,000, and daily volumes had ballooned to between 7 lakh and 10 lakh shares on BSE, and to nearly twice those volumes on NSE. Pentafour was among the top five most actively traded stocks on both exchanges. Such was the interest in the stock that it soon came to be regarded as the barometer of sentiment for technology shares in general.
Very soon, the company began making the right kind of noises in the press about its operations, such as partnerships with big companies and orders from customers. Now fund managers were interested too. Getting fund houses to buy his holdings through negotiated deals ensured that Ketan got a better price than he would have from selling his shares in the market. Dumping the shares in the market would wreck the price and even draw the regulators’ attention, besides causing losses. But palming them off to fund houses would ensure that future losses, if any, would be borne by the unitholders of those funds.
The Pentafour formula would be repeated with the stocks of Zee, Global Telesystems, HFCL, DSQ Software, Aftek Infosys, Ranbaxy, and Software Solutions Integrated, to name a few that Ketan manipulated, over the next couple of years. There were plenty of smaller companies, mostly in the media space, in which Ketan played the same game.
Ketan would ask for a slice of the promoters’ shares at
a steep discount to the market price. He and his associates would then boost volumes in the stock by trading the shares among themselves. Being a qualified chartered accountant, Ketan could understand balance sheets and earnings models very well. Yet, barring a few, his choice of stocks showed he was not really bothered about the fundamentals of the company.
His skill lay in figuring out which ‘story’ could be marketed as a ‘multi-bagger’ in the making. A stock that could double in price was touted as a two-bagger, one which would treble a three-bagger, and so on. His Pentafour Software story projected the company as a provider of high-end animation software to Hollywood studios, and not as a plain vanilla outsourcing outfit.
Having identified the story, Ketan’s next step was to analyse the floating stock in the market so that he could control the stock price. Floating stock refers to the shares held by persons other than the promoters of the company. Analysis of the floating stock involved trying to figure out which big investors in the stock were likely to sell their holdings, and when. Ketan also had to identify fund managers who could be induced to time their sales so that they favoured his trading positions. On the other side, there had to be fund managers who could be persuaded to buy stocks off him. Ketan would also have to figure out how much stock the promoters held through their benami entities. This was critical, because promoters would often try to double-cross operators by selling their shares through their benami accounts while the operators were trying to push up the stock price by buying.