Home > Trading Ideas > Are Indian stocks being rigged?

Are Indian stocks being rigged?

Wednesday, October 24, 2007 Leave a comment Go to comments

This is an interesting story of how one “Mr. India” is rigging the markets big time. Let me know what you think of this story.

This story also tells you why “company news/announcements” are not always reliable. Also company balance sheets are not reliable!

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Categories: Trading Ideas
  1. Nikki Nolan
    Sunday, November 25, 2007 at 8:05 pm

    Indian stock market has very less checks and balances; and everyone knows how easy it is bribe anyone in India. Anyone remembers when anyone went to jail for financial fraud or insider trading in India ?
    And I think Mr Swaminathan from Sanata Clara has his figures completely wrong , the size of Indian market is not 1.5 Trillion USD, LOL.
    Indian press never has its numbers right, like the news headline in TOI “American Indian buisnesses to raise 1.5 Billion for Hillary”. So Indians are still grappling with their millions, billions and trillions instead of lach and crore. In India stock market has matured a lot lately but only when compared to rest of the third world. But middle class has always been a sucker for quick buck. And don’t forget at the time of “Hrashad Mehta” who was chest beating about fundamentals?… Manmohan Singh as then Finance minister, the same person who is now a puppet PM.
    Fundamentals ! …here are the fundamentals…. over 800 Million out of 1.1 Billion people in India live under 2 USD a day, top 1% hold the 80 percent wealth. To top it all this new found wealth is only in big cities with fudged figuers and callous reporting ,and happened in only last 5 years that too because of US business investing in India to sell shoddy and cheap services back home. I have seen average Indian gamble on stocks in early 90’s also ….someone in India needs to yell Greenspans famous term “irrational exuberance”, but I doubt average small investor is smart enough to understand it.

  2. Hari Swaminathan
    Sunday, October 28, 2007 at 10:18 pm

    Ashish,

    I feel this article does well to inform investors of the types of games big people can play with the markets, but overall I would attach very little credibility to the story for the following reasons:

    1) The Indian market is just too big today to manipulate. As the article mentions, investors lost a “whopping” 5000 crore in the Harshad Mehta scam. Today thats a drop in the bucket. Weekend headlines was the market size reached 1.5 Trillion USD.

    2) Manipulating the market at the magnitudes specified (and in cash) would require the entire fleet of trucks on the Indian roads to carry the cash around. While cash was an acceptable method in years gone by, transacting large amounts in cash today is not practical.

    3) FII liquidity is here to stay. I don’t believe Liquidity drives markets, rather its just the opposite. MARKETS ATTRACT LIQUIDITY. Spending equal time in India and outside in a given year, I can testify to the center stage that India and its capital markets occupy in the minds of foreign investors. The developed world does not have avenues to plunk its money besides the BRIC countries, India and China being the most prominent. Even if there were other avenues, India represents a significant opportunity.

    4) As evident from last week’s opening circuit breaker and the subsequent bounce back, even if liquidity were pulled back by FII, the Indian MFs and retail investors are more than happy, willing and able to step in and buy the market at those dips. I personally doubled up during this time, and I am already enjoying the benefits of that move.

    5) Last but not least, the Indian fundamental story is sound. All of last week, earnings announcements were spectacular. CAPEX spending is at dizzying levels as demonstrated by L&T, BHEL and others. Unless all of these companies are fudging their numbers (in which case we have a much bigger problem than Mr India can ever dream up), theer’s just no way a half-baked conspiracy theory can play the markets. i agree with another posting – this is just plain masala (I am a fan of Tehelka normally).

    Overall, the next 5 years (at least) represents the most phenomenal opportunity in India to make a killing in the Indian markets. We have the world’s attention, its money and its patience for at least this much time. It remains to be seen if India can extend this sunrise moment to 10 or 20 years.

    Hari Swaminathan
    Santa Clara, CA

  3. sagecapital
    Saturday, October 27, 2007 at 12:12 am

    Google- One major disadvantage of trend following is that it fails miserably during sideways markets.
    In a sideways market only “range trading” works which means that you buy at the lower end of the range and sell at the upper range. Bear markets usually have this characteristic. (look at the 2001-2002 period in the Indian equity markets)

  4. sagecapital
    Friday, October 26, 2007 at 11:41 pm

    Deepti-Isn’t it simple to pick an uptrending stock? Just pick a stock which is hitting new highs!
    Do you remember when I picked RPL or IDFC or Adani or Kotak bank or L&T or SBI-all of them were hitting lifetime highs?There is no “secret formula”.
    And I have told you that trends occur because of human nature of greed and fear.

    My main issue with most of the fundamental guys is that their analysis is based on “expectations”. They feed on “hope”.This means that they don’t believe in “risk management”.

    Even a master like Warren Buffet didn’t hesitate to take a big loss on his dollar bets!
    And do u know that Mr. Buffet has held on to “Coke” coz of its brand value whereas the stock has remained stagnant for last 10 years( the stock has fallen from 87 to 60)?
    Can you afford to do that?

  5. Deepti
    Friday, October 26, 2007 at 6:50 pm

    Sage,
    Thanks for the invitation, there is no compulsion for you to follow it if you find it difficult.
    I am not an expert yet to write a post.
    The discussion does not mean I am opposing TRENDS. I too follow your blog on TRENDS.
    Understanding and determining TRENDS is complicated for me , did I ask you how you determine TRENDS ? why dont you start a post to tell us how you determine and find out trends.
    Your post on ” Determining Trends ” will be useful for me and all other visitors on this blog
    ( Seriously ).
    Now don’t say there are no FREE LUNCHES.
    You are the owner of the blog, and an expert too.

    Leave side jokes I respect you a lot.

    Deepti

  6. sagecapital
    Friday, October 26, 2007 at 6:07 pm

    Deepti- Your method is looks quite complicated 🙂
    Mine is simple but difficult to follow!
    Would you like to write a post on how u use “fundamentals” with trend? It might be useful for many readers(including myself).

  7. Deepti
    Friday, October 26, 2007 at 5:30 pm

    Sage,

    Fundamentals = Equity Capital
    + Reserves
    + Order Book Position
    + OPM
    + Group ( Ambani, Tata, Mahindra etc)
    + Future Of the Sector ( Growth )
    + Earnings visibility.
    + etc.

    ( … aap meri tang kheech rahe ho kya ! )

    I am also not going to give you FREE LUNCHES !
    I hope you have understood.

    Deepti

  8. sagecapital
    Friday, October 26, 2007 at 4:52 pm

    hmmm..
    My question was how do you “determine” fundamentally strong companies? How do you know that a company is “healthy” or “sick”?
    From order books? From PEs? What metrics do you use to say that a particular company is “fundamentally” strong/weak?
    A doctor uses thermometer to find out the “body temperature” and if it above 98.4, he knows you are having fever.
    What is your “thermometer” to determine the “fundamental health”? 🙂
    For determining trend it is obvious that the metric is “price change”.

  9. Deepti
    Friday, October 26, 2007 at 4:20 pm

    Sage,
    I do not think you have given a ” MEASURE ” of the TREND in any of your articles.
    Sage at present you are living a life, o.k and the number of days you are living on the earth is going on increasing, so we can say it is an uptrend.
    But can you please say how long, and how many days or years you will live ?
    I can only say looking at your health ( Fundamentals)
    that there is a likelyhood of you living longer, if you are healthy person. (i.e.fundamentals)
    If a sick person is running, and the world is running behind him, but suddenly he falls down and is dead, can you return home immediately ( exit )
    Please read your own article on ” Trading and gambling”. I think if you are running behind a sick person than you are gambling.( because even after knowing that he is sick you are running behind him).

    Hence it is always better :-
    Fundamentals + Trend = Profit + safety.

    I trade with strict stoplosses on either side i.e.
    stoploss initially and then trailing stoploss, and mostly i trade in fundamentaly strong scrips.
    ( entry and exit in small lots)

    do you want to continue ” bashing ”

    Thanks

  10. sagecapital
    Friday, October 26, 2007 at 3:26 pm

    Deepti- Welcome to the “sage bashing” club 🙂
    The intent was to know how you measure “fundamentals”.
    Trends I can measure. How do you determine entry and exits using “fundamentals”?

  11. deepti
    Friday, October 26, 2007 at 2:46 pm

    Sage.
    I think you yourself have not read this article on rigging very carefully.
    The dictionary meaning of the word
    Rigging = To manipulate fraudulently (prices)
    In rigging fundamentals are projected euphorically and price of the stock is rigged by the promoters and the operators. Please read the article carefully.
    You should not have any EGO problem.
    Also don’t you think your three musketeers
    L&T, BHEL and ABB have huge order books and strong fundamentals and an up TREND.
    I have learnt a lot from you in the last two months,
    I do not want you to learn from me.( I might be wrong)
    But one thing is sure you surely have a EGO problem
    Thank you, let us not stretch the discussion. Let us consider I am wrong.

  12. sagecapital
    Friday, October 26, 2007 at 11:00 am

    If fundamentals are “fake”, how can you even use them? How do you find out if the fundamentals are “fake” or real?
    As a trend trader, it doesn’t matter to me if the price is rigged.

    Take Adani enterprises for example or REL- my strong gut feel is that the prices might be rigged !But as a trend trader, I have made more than 100%+ on these scrips in less than 3 months.
    Give me an example how you have recently used “fundamentals” to make money.Things might be more clear then. May be we can learn a thing or two.

  13. deepti
    Friday, October 26, 2007 at 9:57 am

    Sage,
    I mean to say by rigging a trap of
    ” FAKE FUNDAMENTALS ” is layed, and
    the price is rigged to make it show an uptrend.
    Hence I always follow a TREND with a back up of
    FUNDAMENTALS.

  14. google
    Friday, October 26, 2007 at 9:49 am

    Hello Sage,

    I’ve another question, when shall a retail investor need a professional adviser? There are so many small investors in market, now how can one be aware of whether they need any professional adviser? Since past 4-5 years, whichever person I’ve met has made good profit in the market. Everyone is happy, so this makes me wonder why people go for professional advise at all? Perhaps shall a person compare itself against some benchmark to find out whether s/he is doing as one should?

    Thanks and Regards.
    ~G

  15. google
    Friday, October 26, 2007 at 9:44 am

    Hello Sage,

    Every approach has some pros and cons. I’m a newbie, so can you please share what are the advantages/ disadvantages of approach with reliance over “trends” alone. Since you have been in this business for long time (as it appears), where & when all you felt “trend” provided you an upper hand and similarly where all it disappointed you.

    You can ignore answering if this is something personal.

    Thanks & Regards.
    ~G

  16. sagecapital
    Friday, October 26, 2007 at 9:44 am

    I didn’t get you on “trap” thing.
    If a stock is an uptrend and is liquid enough for you to get in and get out, then what could be the trap?May be I am missing something!
    I do not enter stocks which are illiquid and hit these upper and lower circuits repetitively.
    How do you incorporate “fundamentals”? Do you use valuation models?

  17. deepti
    Friday, October 26, 2007 at 9:19 am

    Sage,
    As per the above article a ” TREND ” is created

    without the fundamentals, and a trap can be layed for

    trend followers. I usually follow :-

    TREND + Fundamentals = Results

  18. sagecapital
    Friday, October 26, 2007 at 8:22 am

    Ashish- I just found it interesting and wanted to share with you. The intent was to tell you that all “news” cannot be trusted as some of it is intentionally “planted”. Since most of people invest based on company news, one needs to be cautious.
    I prefer to ride the uptrend in the stocks without knowing the “reasons”. This gives me safe entry and and exit points.

  19. google
    Friday, October 26, 2007 at 7:06 am

    Well said Sir.

  20. sagecapital
    Thursday, October 25, 2007 at 10:23 pm

    Markets trending up nicely-nothing more to say 🙂
    Many stocks like RPL are hitting new highs!
    I wonder how these TV guys cook up interesting stories everyday!
    SEBI decision to restrict hedge funds might be a big negative.So this might be a big drain on liquidity and all of us know it is liquidity which drives the market.
    I am just following the price action rather than worry about these things. Now its all about having more profits Vs giving back some of them!

  21. ReyMax
    Thursday, October 25, 2007 at 10:03 pm

    Hey everybody

    Sage is silent today – lets go short tomorrow.

    cheers

  22. ReyMax
    Thursday, October 25, 2007 at 10:01 pm

    Hey Sage

    No post from you today!

    Whenever u go pnto silent mode, i get worried about the market direction.

    Maybe, we your fans should make this into a trading indicator!!!

  23. google
    Thursday, October 25, 2007 at 6:19 pm

    Hello Sage,

    Do you agree to what’s written in the article?

    Regards.

  24. ashish ji
    Thursday, October 25, 2007 at 10:02 am

    SAGEEE- NOT a qaulity ARCTICLE SUPRINGLY FROM YOU 😦 … LOOKSS MORE OF GOSSSPIPS masaala typES 😦

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