Harshad Shaped Indian Market... ?

In 1992, a man drove to State Bank of India headquarters in his glistening new Toyota Lexus, which had just been launched in the international market. Obviously, the owner had paid a fortune to import the car. A few days later, the news media reported that around Rs 6 billion (149.418 million USD)* worth of government securities were missing from SBI.

Investigating agencies, pressed into service to uncover the facts behind the missing securities, discovered that the unaccounted securities were just the tip of an iceberg. Deeper investigations revealed that the shortfall in securities was not only in SBI but in other national and foreign banks and financial institutions as well. It became apparent the securities scam ran into more than Rs 35 billion (871.605 million USD)*. The man behind the news that shook the market’s financial foundations was Harshad Mehta.

This huge suck-off almost took the wind out of the financial reforms introduced only a year ago.

In fallout of this massive con game, the stock market crashed 40 per cent and wiped off more than Rs 1 lakh crore in two months. This unexampled securities swindle exposed the underlying loopholes in monitoring, banking and capital market processes and the vulnerability of the country’s economic structure. A slew of plug-in measures were initiated.

Market regulatory bodies National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) were set up; badla was banned; and online trading was started.

Thanks to the scam, the Indian capital market today stands completely revamped and is now among the world’s best regulated markets. Another redeeming feature of the scam was that a lot of investors joined the stock market. In fact, Harshad Mehta can take pride that several new investors to exposure in the market, egged on by the man who for them had emerged as cult figure.

DS

* 1 USD = 40.1558045 INR

Source: Dalal Street Investment Journal, Vol XXIII No. 7; p105