By M D Nalapat
A former UPA minister is trying, secretly, to engineer a meltdown in stock market prices by 1 October this year.
A prominent politician, who was a minister during the Manmohan Singh government, is behind a move by as much as 31 brokerages and international and domestic financial agencies to secretly engineer a meltdown in stock market prices such that market indices lose around half their 2 February level by 1 October 2018. They are working in tandem with a few officials in key ministries, who have lately renewed or expanded their contact with the politician in question in the expectation that he will return to a top position in a future government, should the BJP go the A.B. Vajpayee way next year and fail to get re-elected. The politician’s business associates in India and abroad are hopeful that he may even get “the highest job”, according to a senior official tracking the activities of the former minister. A colleague estimated that “at least Rs 39,000 crore was made by the minister while in office just through stock market manipulations”. An officer dealing in the financial sector explained that the minister would use the information and clout of a particular ministry to move share markets in the direction most profitable to him and those friends and family who joined with him in such speculation. “If the Finance as well as the Commerce & Industry Ministries worked in tandem, and if they had a high-level confidential source in RBI as well, they could make policy announcements (or hints) that would immediately push up or down prices of certain stocks”, an official explained, adding that this was precisely what was done during the minister’s long tenure in office.
If coordinated moves were designed so as to drive prices artificially up by making retail investors flock to certain stocks, the minister would subsequently influence government agencies through trusted officials to purchase stock and “make huge buys at elevated levels”, a senior official explained. These would “mostly be the shares purchased earlier (at much lower prices) by the minister and his cabal (of friends and family), by using foreign institutional investors and devices such as Participatory Notes, so that they cannot be identified”. The officials said that it would be “child’s play” to check the share purchase docket of agencies such as LIC or other state-controlled financial giants to determine which shares were bought during 2004-2014 at prices that soon afterwards crashed. He went on to say that this was surprisingly not attempted by the present government. He added that “the (former) minister has seen to it that the officials who connived with him have almost all been given important responsibilities even to this day, hence their loyalty to the man”. In other instances, leaks made through business newspapers and television channels were carefully designed so as to depress prices of select shares, and once prices fell significantly, the minister and his cabal (including associates in trusted brokerage firms and stock exchanges) would buy such shares through the anonymous FII route. Once the shares were bought, “fresh announcements in the form of rollback of earlier statements, or positive hints about policy towards the sector in question would be given. This would send up prices of target companies, at which time the shares bought at low prices would be sold.” The sources said that “by this fail safe system, the minister and his cronies and kin made enormous sums of money working entirely through the banking system”, a part of which was later brought back into the country through FIIs, and some cash through hawala routes. “Certain brokers, many of whom operate from Rajasthan and Punjab, are close to the (former) minister. They are neck-deep in hawala transactions, and are the channels that are being used to bring cash back into the country”, a senior official claimed. “These brokers need to be investigated seriously for their hawala links, but so far even SEBI has done precious little against them”, an official said, adding that he was hopeful that this may change in view of the fact that “some outstanding police officials have recently been given responsibility for investigating hawala channels”.
Amazingly, the former minister is claiming credit for both the negative opening of the Singapore stock exchange on 2 February, as well as the unusual warning by Fitch rating agency that higher welfare spending in the budget just announced would impact India’s upgrade. Fitch’s comment was unexpected and the former minister has claimed to his associates that his “friends” in New York, London, Singapore and Dubai will ensure that Moody’s, Standard & Poor’s, as well as Goldman Sachs will soon issue similar warnings on India. The “October Meltdown” cabal expects these coming negative international comments by the very agencies that the Narendra Modi government is showcasing as his boosters, to spook financial markets.
In the weeks before the Union Budget was presented, reports appeared about likely measures, including a tax on long-term capital gains. In the past in many cases, were a report about a proposed budgetary measure to get revealed in the media, that step would have been cancelled, but in the case of the 2018-19 Union Budget, the government has gone ahead with the announcement of a tax on long-term capital gains despite media reports forecasting exactly such a move. “The cabal was confident that the measure would be introduced despite the media reports. They however advised unsuspecting clients to buy stocks.” The stocks bought during the pre-budget period by retail investors were in large part those being offloaded at the same time by the 31 brokers and other financial players behind the “October Meltdown” cabal led by the former UPA-era minister, who interestingly was the same individual who got planted the fake news report about a “coup attempt” by the then Chief of the Army Staff, General V.K. Singh. “The very brokers who advised unwary clients to buy were themselves at the same time short-selling their own stock through proprietary and offshore accounts, including those controlled by the former minister and his kin.” As all such transactions are taking place through the FII route and anyway official agencies seem to be looking the other way, officials say that the “October Meltdown” cabal is confident that they will escape any consequences for the actions they are taking to ensure that retail investors suffer immense financial losses as a consequence of the manipulations indulged in by the gang. “The only problem facing the cabal is that it will cost about Rs 3000 crore to engineer a crash of sufficient proportions.” Those aware of the operation claim that the UPA-era minister is presently willing to spend only Rs 500 crore of his own stash in the operation, but that he has raised another Rs 650 crore from others. An official forecast that the former minister will pony up “as much as Rs 2,000 crore, but only if he is confident that he will get the same rank in a post-poll government as he enjoyed during the UPA period”. A colleague of the official added that the ambitious and brilliant politician from a large state “does not want to be the Subramanian Swamy of the new government, who does the heavy lifting bringing down the image of the rival party and then gets peanuts as reward, the more so as the moves made by him would be carried out in secret, unlike Swamy’s, which were all in the open”.
Many of the senior members of the cabal, including brokerage firms close to the former minister, retain close contact with senior officials and politicians in the present government, several of whom the former minister had assisted while he was in office. Many of the officials who worked closely with the former minister in facilitating his moneymaking operations retain positions of high responsibility in the present government. Once he took charge as Prime Minister, Narendra Modi decided in a statesmanlike gesture to avoid a housecleaning of the bureaucracy by removing those linked to the previous regime. Instead, many such officials have been given honour and respect by the new government, as well as multiple promotions. Unfortunately for Modi, some of these officials have continued their confidential contacts with their previous patrons, and are favourably inclined towards a change in government. The UTI scam that cost millions of small investors their savings played a key role in ensuring the defeat of the BJP in towns and cities across India in 2004. Should there be a stock market crash on the scale planned by the “October Meltdown” cabal headed by the former minister, once again towns and cities across India are likely to vote against the BJP. It may be remembered that in the Gujarat Assembly polls, only a strong showing in urban areas ensured the return to power of the BJP, and this in Modi’s own state. A stock market crash would be sufficient to persuade even Gujarat voters to look elsewhere the next time around.
The officials concerned gave examples of the manipulations of the former minister, including in the sale of a mining entity in Goa, whose share price was temporarily lowered (during negotiations for outright sale) as a consequence of a budget announcement made by the finance ministry during the UPA regime. Once the transfer of the company took place to friendly hands (at a low price), the final budget proposals withdrew the very budget announcement that had temporarily depressed the mining company’s stock so as to enable its purchase at a low price. “There are dozens of such examples of manipulation of share prices, but no one seems to be interested in looking into them”, an official said, adding that SEBI has been “worse than useless” in checking much of the misuse of stock exchanges for enrichment through price manipulation and insider trading.
Should the former minister be given an assurance by his party that he will be pitchforked into high office after the polls, the BJP may be in for an electoral ride made impossibly rough by the newly formed “October Meltdown” cabal using its deep pockets to engineer a steep and steady fall in share prices during the period preceding the Lok Sabha elections.