IB Report on Indian Stock Brokers No Surprise for St; Expect Knee-jerk Reaction

Ketan Parekh behind possible price manipulation in some mid-caps, says IB

Dalal Street knows that disgraced brokers do not quit the market but operate in disguise. Every few months, government agencies stumble over this truth as they try to piece together information picked up from market intelligence and telephone conversations that may have been tapped. A handful of midcap stocks — where operators have tried to rig the price — are named in such reports, which find their way to the media. While these occasional leaks rarely impact the broad market, they provide an opportunity for another set of operators to hammer the stocks for a few trading sessions. This may happen once again. The latest findings of the Intelligence Bureau (IB), reported by one of the newspapers, talks about Ketan Parekh — the broker who was banned from the market after the 2001 securities scam — behind possible stock price manipulation in Dewan Housing Finance Corporation, Goenka Diamond and Jewels, Orchid Chemicals and Pharmaceuticals (OCPL), IVRCL, Pantaloon Retail (India), GMR Infrastructure, and the Tribhovandas Bhimji Zaveri IPO. 

Indeed, KP, as he is known, still has a following among some FIIs and hedge funds for his trading and price manipulation skills. There are occasional rumours that he is back. While it was never substantiated, the broker had been linked to politicians and industrialists. The last time a government agency had come with a report on KP, Dalal Street was abuzz with talk that he had helped an influential politician and power broker in Uttar Pradesh to make money. 
But, the recent IB report has apparently not disturbed the broking community as much as similar reports have done in the past. "We have been hearing talks of the involvement of small-time operators in irregular activities in some of the midcap counters but we don't think any largescale manipulation is happening that would have adverse impact on the overall market," said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, without referring to the IB report of which he was not aware of. 
The report says a clutch of operators led by Ketan Parekh is also in touch with an LIC official and a few other insurance companies to prop up prices before an institutional placement and offload at a later point to unsuspecting investors. The stocks named in the report may see knee-jerk reaction. A weak market may add to the likely pressure on them. "While there will not be any longterm impact, investors, including funds, would shy away from buying these stocks till the controversy is kept alive," said Arun Kejriwal, founder of information and research firm KRIS. "While IB gives these names every year, there is no further news of any action taken by the regulator. Regulator should investigate and find out the truth so that investors have confidence in the market," he said. 
A similar report by IB in December 2010 had blamed KP — the poster boy of the technology shares-led bull run in 1999-00 — for using front entities to trade in shares like those of Orchid Chemicals, GMR Infrastructure, Cairn India, Deccan Chronicles Holdings, Reliance Industries, Punj Lloyd, Indiabulls Real Estate, Pipavav Shipyard, Amtek Auto, Hindustan Oil Exploration, UCO Bank, State Bank of India, EIH and JSW Steel, among others. 
"Ketan Parekh's presence in the market has long been reported. But, it is not easy to lift the veil," said RS Loona, managing partner at Alliance Corporate Lawyers and former Sebi director. "Many operators or brokers banned by Sebi operate through front entities that have nothing on paper. IB does not require any evidence for whatever it says, but if Sebi has to pass any order or take any action, it will need evidence that can be proved in a court of law," he said. However, these are leads that the Sebi will have to investigate. 
The regulator typically shares these leads with stock exchanges. According to exchange circles, such information are shared on a regular basis, but very little comes out of it as often the details are not accurate. But neither bourses nor regulators can ignore these reports. "There must be some credence in the IB report as stock market manipulation activity is prevalent in every market, bullish or bearish," said ST Gerela, CEO of Satco Securities and former head of the BSE's surveillance department. Some of the stocks named in the latest IB report have outperformed the market in the current calendar year. For instance, Goenka Diamond & Jewels has jumped from its 52-week low of . 28.2 on December 22, 2011, to a 52-week high of . 204.4 on Friday when it closed 5% up at . 202 on the BSE, an appreciation of more than seven times. Orchid Chemicals & Pharma has surged from a 52-week low of . 109 on June 20 to a recent high of . 127.8, before ending at . 125 on Friday. Most of the other stocks have seen volatile movements in the past few months, but the impact may be limited. 
"We have been seeing smaller instances of irregularities in the market but we don't believe any large-scale market manipulation is possible given the stringent monitoring of market regulator Sebi," said Dinesh Thakkar, chairman and managing director, Angel Broking. 
In the last two to three years, many operators were forced out of the market, because of the lack of funding. Most of the big positions they were holding had been either sold by the lenders or have suffered huge losses. Many mid-caps have fallen 50-90% and there was little interest from funds and retail investors. At present, many operators and promoters are in a wait-andwatch mode. They are waiting for the market to revive.