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.
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