This one note I used for my presentation to Support employees (Admin, HR etc) during 2012 annual conclave. I thought will share with you.
It’s all about money
We are not new to betrayal, cheating or plunder. A middle class Indian get cheated right from dawn to dusk be it sabzi mandi or at place of employment or even sophisticated services such as internet, cell phone. A hardworking person with financial or non-financial burdens finds it very hard to fight at different forums. The apathetical society adds catalyst to rancor mindset leaving a trail of distrust and the treason wall never fell ever and forever.
Market is no different than society; it’s a reflection of our dark consciousness. Impostors also play havoc in market like any other place. As the liquidity and volume is very high it becomes easier for the unwanted characters to make merry at public cost.
Certain actions by sections of promoters and associated influential group keep finding one or other way to manipulate public wealth for personal benefits. Investor suffers life time bad luck when they lose their whole savings. But the numbers are limited we must remember, optimism must over ride skepticism; we must not allow the iconic market place to fall because of few impostors.
Even manipulation happens in debt market such as fixed deposit; recently an arrest confirms all is not well with financial world. My heart goes to all those daily “pigmy” investors who deposited money every day after a hard day’s work. May GOD give better sense to manipulators in bringing back ill-gotten wealth to the right place.
Ways and means promoter manipulation
Manipulation is like computer virus, you set anti-virus software …as long as the definition of virus is included in software it will take care of, the new ones will never be addressed immediately. Same way promoters keep innovating new tricks those which were not noticed earlier. 1993, 2002 or 2009 story is different but sufferers remain same i.e. the retail shareholders.
But but May I repeat again☺…….investment connects people regardless of their cultural, political or even religious background . It’s a voice to express discontent on economic uncertainties around us in a rapidly changing society. And for investors across the globe, investment is more than money, more than an identity, investment is freedom and together we are a global tribe.
A. False Announcements: key events that affects operation or financial of the company must be disclosed to stock exchange immediately. Unfortunately intent of circular is manipulated largely. Often false announcements are submitted, stories are built on social media. The announcements are not audited so no way we can verify independently the accuracy of it. Quite a few companies caught lying later on, but then it’s too late sometime. The impostors would have sold their shares and got out of it. Ironically there is no penalty for false announcement.
B. Circular trading: you sell to me and I will sell to you. This is practiced in small cap companies normally where liquidity is minimal. Stock Exchange has set filters , a limit to which stock can go up or down in a particular day. It can be 5, 10 or 20% depending on segmentation (lets catch up on market place sometime else). What a circular trader do is put the bid price close to circuit filter and immediately bought by another circular trader. This gives an impression something is good happening with company which is known to a few. Retail shareholders in anticipation started joining in last leg of price where circular trader starts offloading shares at higher value to retail share holders. Caught at a higher price stock hits lower circuit everyday making it impossible for retail shareholder to come out. By the time circuit opens it would have damaged 80% to value of cost. Circular traders are also called operators though an operator does do many more things, bad only.
C. Suppress income: some listed companies have floated 10-15 pvt ltd companies, 2-3 propriety firms etc where finished products are sold to private firms who sell to dealers and whole sellers to make a huge profit which does not get reflected in listed company’s accounts. Under reporting of revenue is common in steel companies where adjustments are done through unlisted companies to disguise profits.
D. Cash sales: cash sells does not get reflected in books, this will lead to disproportionate rise in raw material cost and expenses which pulls down the margin. This practice is more rampant in metal companies.
E. Fake bills: buy fake bills for a small price and make the payment against the bills by cheque instead of receiving goods and ask for money back in cash. For example buy 10 crore of raw material purchase and pay by cheque. Material never comes to warehouse instead they get a cash back minus a tiny commission. Naturally the profits are pull down intentionally.
F. Windfall gains: assets sold without distributing anything to shareholders. Company created separate entity to sell the land belong to listed company only who buys from listed company at a very meager price there by suppress real estate valuation.
G. Fake exports, foreign acquisitions: In a bull market, higher revenues and profits benefit the promoters directly, and instantly, in the form of higher market capitalisation. How do they boost revenues and profits? Often, by transferring illegal money that is stashed abroad by promoters, builders, bureaucrats and politicians to Indian companies through banking channels; it is shown as export proceeds. Many companies suddenly become zero-to-hero, showing a meteoric rise in the top line in just a few quarters. Unknown promoters from unknown companies suddenly do far better than their established competitors. (Source: Hemant Gupta in Moneylife).
H. Pump and dump with operators: Market operators are an essential component of a bull market. Promoters need them to cheat investors through price rigging and profit rigging. The usual route is to show exaggerated profits, loan shares to operators and unload the promoter’s holding. Promoters usually collude with market operators who flaunt the right connections – foreign and Indian institutional investors as clients. It is an open secret in Mumbai that many fund managers receive huge kickbacks for investing in certain companies with an assurance from the promoter/operators that they can exit at a high price through market manipulation. (Source: Hemant Gupta in Moneylife).
I. Broken pacts: Another trick by Indian promoters is to announce a joint venture (JV) for a new project. After a while, there are reports about differences between the JV partners. The money invested in the JV is never recovered. It is written off over five or seven years. All this is well-planned. The JV is floated precisely to siphon off money by taking away money invested in the JV. (Source: Hemant Gupta in Moneylife)
Momentary lapse of reasoning may deter a miniscule retail investor from entering to stock markets, but let us remember eventually triumph comes for those who are victorious. Victory in market parlance is all about corporate governance, honesty and wisdom. Rest all fraternity are punished in one or several manner. We don’t have to refer to religious holy books to know the truth, it happens every day in our lifetime. That’s why Tata’s command far bigger valuation than others, no wonder likes of Murthy and Premji dominates market place. Many of the manipulators of past even big names have been disappeared, disgruntled or unknown to many.