Tuesday, June 12, 2012

Your Broker As A Cheat (Part 13)


I have frequently reiterated to the readers of the blog the possible collusion between merchant bankers, brokers and sub-brokers and stiff the public with high priced stock or junk stock.

Let us talk today about the Indian IPO market.  Reliance Power Limited, in my opinion, was the reason for the beginning of 2008 stock market crises in India. Most of India’s merchant bankers and who’s who in the IPO business, created this hype and glory about how this stock would change your fortunes.  Many brokers and sub-brokers assured their customers that the stock would list at four-digit figures despite an initial high price of Rs 450/- per share.

Here are some more details, mostly from gossip and grapevine.  The people associated with this fraud decided to spread the message by spending millions on a campaign.  The campaign included the grey market operators who initially bought the shares for a premium of Rs 3000/- per share application. This amount got many investors curious.  The operators then decided to move the premium up to Rs 5000/- per share application.  The Indian public got crazy about the stock and began fantasizing about the price at which the stock would list.  The operators then decided to move the price up to Rs 7500/- per share application.  This was done near about the application date.  The people of India soon decided that they were about to hold the bluest of the blue chip stocks.

The Draft Red Herring Prospectus clearly listed the fact that it would be eight years before the company would go operational.  However, Indians lapped up the issued.  The share listed poorly and is quoting today at 25% of that value.

Further attention is drawn towards SKS Microfinance, DLF, etc.

Did your broker sing you a song about these stocks?  If so, you may want to rethink about the quality of information he/she may dish out to you.

© Nitesh Kotecha

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