1992: The Securities Scam

     Print Edition: Jan 9, 2011

At 37, Harshad Mehta had everything going for him. The New India Assurance employee-turned stockbroker was living in a 15,000 sq.ft. plush apartment with a swimming pool in up-market Worli. Dalal Street worshipped him as the "Big Bull". When the securities scam of 1992 broke out, it emerged that Mehta was using bank receipts of public sector banks to buy stocks.

Mehta deployed well over Rs 1,000 crore and triggered the biggest bull run in the Indian stock market. The BSE Sensex rose from around 2,000 points in January 1992 to 4,467 points in April that year. The Sensex tanked to 2,529 points in August, wiping out over Rs 100,000 crore in market capitalisation. The scam rocked Parliament and Mehta was jailed. A decade later, Mehta died in a hospital with 27 cases still pending against him. The SEBI Act was enacted in the aftermath, but that still did not prevent the occurrence of market manipulations like the MS Shoes scam (1994), CRB scam (1997), vanishing companies scam (1998), plantation companies scam (1999), and the Ketan Parekh scam (2001).

Enter the FIIs
Foreign institutional investors (FIIs) entered the Indian stock market in September 1992. They began cautiously. By 1993, 18 FIIs were registered with market watchdog SEBI and they had invested Rs 2,595 crore. As they gained in confidence and began to believe in the India growth story, the trickle became a flood. As of December 7, 2010, 1,713 FIIs were registered with SEBI and their net investment in India (both equity and debt) stood at Rs 524,370 crore.

The First GDR Issue
While allowing FIIs access to the Indian securities market, the government simultaneously permitted Indian companies to raise funds from international markets. Reliance Industries was the first to take advantage of this. In what was the first ever international share offering by an Indian corporate, Reliance raised $150 million to fund its expansion plan through global depository receipts that were listed on the New York Stock Exchange.

Did you know?
Harshad Mehta had paid an advance tax of Rs 28 crore for the fi nancial year 1991-92. That and his extravagant lifestyle caught the taxman's attention.

Quote of the year
We have realised that the days of conglomerates are over. The protected environment is crumbling all around us.
Harsh Goenka, MD, Chairman, RPG Enterprises

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