IT's NOT EASY

I have probably written a million blogs on the importance of investing in the markets and how ordinary people have minted money in the markets. There is a famous Marathi proverb that goes like, 'दिसते तसे नसते, म्हणून जग फसते.' which basically translates to: one shouldn't always believe what the eyes see. As you all might have guessed, today's blog isn't going to be on the brighter side of the markets, but on the dark reality that has been buried in our historical pages. These rags-to-riches stories aren't as legitimate as they have been broadcasted. Some of you won't agree, or some of you might judge me for saying the things that I am about to say, to which my reply would be a fabulous word in Marathi, चालायचंच..! So, let's begin.

I am going to share a few stories, which will hopefully highlight all the things that I want you all to be familiar with. By the end of this blog, you will understand how power and money can do wonders., how market regulators are at the mercy of big players and how retailers are manipulated in order to make profits. You will also find out how domestic institutions like LIC give no damn about our savings.

The year was 2007. SEBI, our market regulator, filed a 92-page report on Infosys stock manipulation. Inside that report, famous Indian investors like Radhakrishnan Damani, the Ajay Kayan Group, and Shankar Sharma were alleged to have manipulated the stock in order to profit from it. The report said that 6–6.5% of outstanding INFY shares exchanged hands before negative news came out, and this bear cartel hammered the stock on the basis of insider information, which is a crime in India, and made huge profits. The cartel took short positions and hammered the stock, which caused panic selling, making thousands of crores out of it and making a fool out of the retail investors.

A similar thing happened a few years later when another renowned investor was accused of insider trading in a stock called Aptech. He was none other than the late Rakesh Jhunjhunwala. Not once, not twice, but this renowned investor took a huge stake in the company and acted multiple times on insider information. He went on to make crores and crores of profit for God knows how many years, and when finally our "regulator" woke up and smelled some discrepancies, he offloaded his stake. After conducting an investigation, Mr. Jhunjhunwala agreed to settle this case in exchange for a hefty fine (for us) of Rs 37 crore. At least in my dictionary, the word settlement is used when you are found guilty and want to let go of the situation by paying a small fine called a "penalty."

Another story dates back to the year 2014. The company name is MCX (multi-commodity exchange), and the antagonist is again Mr. Jhunjhunwala. A mutual fund house was about to increase their stakes in the company because of its fantastic prospects. MCX was an emerging company and was out of the limelight. Very few people had this stock. The mutual fund house never leaked this information, nor did they apply for permission from the exchange. Somehow, Mr. Jhunjhunwala found out that this mutual fund was about to increase their stake, and hence, he bought himself a few million shares prior to the mutual fund, making millions of dollars. Amit Goela, then CEO of MCX, had worked with Rakesh Jhunjhunwala in the past before he became CEO and was mentored by Mr. Rakesh.

Words like integrity, honesty, and many more have been used to describe these investors. I don't think any of the above-mentioned stories highlight these qualities. These "investors" aren't as clean as they portray. Wearing a crippled white shirt with white trousers won't always portray integrity and honesty. It is rather a great way to hide reality.

The next story is again about Mr. Jhunjhunwala. His journey from Rs 5000 to Rs 5000 crore has been glamourized a lot. It isn't as shiny as it looks. In the year 2019, a world-famous bank went bankrupt. They had around 1300 branches, of which 1300 were loss-making. On November 4, 2019, Mr. Jhunjhunwala comes online and announces that he has taken a small stake in the company. When you buy a stake in any company, you need to disclose it in the filings first and not on social media. After the announcement, innocent retail investors started buying Yes Bank shares and created a volume of 3 crores. It is alleged that ICICI Bank used to give collateral-free loans to Mr. Rakesh so that he could invest and earn on that money. Rana Kapoor and his family (Yes Bank Promoters) took advantage of this opportunity and offloaded Rs 3000–4000 crore worth of personal stakes. It is said that Mr. Jhunjhunwala earned somewhere between Rs 100 and Rs 300 crore in commission. Sometimes a 2% commission is more profitable than a 20–30% profit itself. Is the money that we deposit in the bank really safe? I don't give free tips, but I would highly recommend that you all stay away from banks. Never invest in banks. ETFs are good.

Indian stock markets are at the mercy of big brokers, media houses, illiterate politicians, and cruel businessmen. We all have this misconception that these companies want us to be a part of their growth journey. The truth is, we are all a bunch of fools who are easy to manipulate. Sounds harsh? Let me refresh your memory.

The year was 2008, and India was expecting its biggest ever IPO. Everyone is excited and eagerly waiting for the allotment. Drivers, maids, literates, politicians, haves and have nots—every single one of them was talking about this IPO. When the promoter was asked about this frenzy, he said that people trust us. They believe that we, at Reliance Power, can brighten their future. On the opening, the company received Rs 11,000 crore worth of bids in 2 minutes. Three years down the line, the same set of brokers who were recommending a buy on R Power asked everyone to sell the stock, to which Anil Ambani replied, that they were manipulating his stock. Same broker, same promoter. Earlier, Anil was a hero, and now, three years later, he is a thief. What changed?

Fact: Anil Ambani had 122 companies that share the same address. How?

I have heard so many stories about Rakesh Jhunjhunwala that I would probably need a separate blog to write about them. Surana Solars, Aptech, Yes Bank, DHFL, and the list goes on and on. Promoters, investors, institutions, and everyone at the top manipulate the markets according to their wants. Markets feel like marionettes. Reliance Naval and Engineering, which was asked to manufacture vessels for the Indian Navy, retained their license despite so many frauds and scams. It took 6-7 years for the "regulators" to snatch their licenses. What about the investors? Google their stock prices. LIC, who promises to accompany us with life and after life, are the flag bearers of the "we don't give a damn about citizens" group. I am afraid you all will start withdrawing your policies if I write about LIC. Out of all the frauds that LIC has undertaken, one of the biggest occurred recently. Remember Adani-Hindenburg?

NBFCs are another jewel of our financial systems. Nowhere else have there been scams as in NBFCs. DHFL, ADAG, IL&FS, India Bulls Housing Finance, and many more. Let's take ADAG. I'll summarize how NBFC undertake scams with the utmost sophistication. NBFCs are mandatorily required to report third-party transactions. For example, if I run a NBFC and I want to buy land from my father or mother, I will have to inform the regulator and get his permission. In the case of loans, I don't need to get permission. What ADAG did was create 3 new companies. A, D, and G. A bought a 51% stake in D. D bought a 51% stake in G, and G bought a 51% stake in A. In this way, ADAG isn't the majority shareholder anymore, and hence, transacting with any of the above-mentioned companies won't be classified as a third-party transaction. (Promoters of this group are either directly or indirectly related to ADAG.) Since these transactions aren't third-party, loans worth crores and crores are easily sanctioned, and promoters buy land or use that proceeds to manipulate the markets. 

These idols that we all look up to haven't made money through fair means. We are narrated the same story how Rakesh Ji bought Titan, how Ramesh Damani bought INFY or how RK Damani invested in VST Industries, ITC, or HDFC Bank. Apart from all these investments, these investors haven't made any significant or legitimate bets. Most of their money has been an outcome of short-selling and taking advantage of the infamous "Badla" and "Dabba" trading system. In today's world, at the most, a retail investor can ask for 5X leverage. Basically, I can buy shares worth Rs 500 even if I have Rs 100 in my pockets. Back in the 90's, infamous trading systems like dabba trading offered 100X leverage. In the last 20 years, these investors haven't made any significant bets. Significant in the sense that the stocks haven't gone up 100-200X. 

We have been brainwashed to such an extent that we have stopped thinking. How is it even possible to believe the fact that Mr. Raamdeo Agarwal made Rs 30 crore in 2 years from scratch? How is it possible that Mr. Jhunjhunwala made Rs 30 crore in the 1989–90 budget when he himself admitted that his net worth was Rs 2 crore? RK Damani, one of the leading members of the bear cartel, made tons of money by shorting all the stocks that Ketan Parekh was manipulating. There is a saying in Hindi that goes like, "जो दीखता है वो बिकता है". I recently watched a movie called Bazaar. In that, the protagonist is shown as a wealthy investor, and his follower approaches him and starts talking about the hardships the investor faced, to which he replies, "Sometimes you have to cook stories. Don't believe everything you read". 

On that note, I will end this blog. Writing this blog has been one of the toughest things I have come across this year. I am not even 1% of what these guys are or what they have achieved. I am just trying to be rational and highlight what needs to be highlighted. Don't ever invest in a company just because an investor has already invested. A friend of mine in the BSE once told me that Rakesh Ji bought and sold Titan shares many times before every disclosure. And we think that he has been sitting on that stock since the 2000s. Research well. Read a lot. Learning and getting inspired by these legends is a must, but blindly following them is foolishness. If you have no knowledge about the markets, always consult a professional. I hope I was successful at highlighting the misbehavior that goes on in the markets. I hope you all are not demotivated, because it's true that equities can help us accumulate large sums of wealth, provided we have the patience and resources. Always remember what Bejamin Graham said: "In the short run, the market is a voting machine, and in the long run, it is a weighing machine."

HAPPY INVESTING.