Are all the market crashes bad?

Amit Trivedi of Karmayog Knowledge Academy on why the great Indian securities scam resulted in a better and safer market for the investors.

Click on the link below to read the article:

Are all crashes bad?

#RidingTheRollerCoaster

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Samudra manthan – Excessive turbulence

Think of all market turbulence as “Samudra manthan”. In the mythological story of samurai manthan, so many things came out, including poison and nectar. The market turbulence is no different. Every market turbulence brings out some poison and some nectar.

The poison kills many investors’ portfolios and reputations of some experts. On the other hand, we have seen in some episodes how the turbulence brought out the best. Some examples of the nectar are:

  • Birth of Securities Exchange Commission, Federal Deposit Insurance Corporation and Federal Reserve bank after the great depression
  • Beautiful tulip gardens of Amsterdam
  • Birth of SEBI, NSDL, NSE after the great Indian securities scam. Innovations like screen based trading, dematerialisation of securities, rolling settlement, etc.
  • Birth of companies like Amazon, Google, etc. in the DotCom boom

Such churning of the ocean is required to bring out the nectar.

Demi-Gods

In every market cycles there are some who attain the Demi God status.

During the DotCom boom, we had many investment bankers achieving that state in the US. In India, we had our own Mr. Ketan Parekh. In the great Indian Securities Scam, Harshad Mehta had a very wide fan following.

Most humans always need a leader to be followed. Sometimes it could be Adolf Hitler and sometimes Mahatma Gandhi, but a leader is needed. The same behaviour is carried forward in financial markets, too.

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The Mazda saga continues …

Just because Harshad Mehta was interested in a company called “Mazda”, many did not even wait to check the full name of the company and wanted to buy it as long as the company had the word “Mazda” in the name. There were 3 to 4 other companies that enjoyed price rises simply because of this magic word – Mazda – in their names. So much for the Midas touch, only that Midas had not even touched these companies.

Attention to details is a rare trait among many. It becomes even more rare when greed takes over and everyone is in a hurry to make money.

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More on Mazda Industries

After Harshad Mehta took over the company, the stock price zoomed. From Rs. 39 in October 1991, it went to Rs. 1,600 by March 1992. Yes, it was 40 times in six months. This is not a typographical error.

The Pied Piper Hameln led the children of the town to a mountain nearby never to return.

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Mazda Industries Ltd

Harshad Mehta took over a loss making leasing company – Mazda Industries Ltd. The loss making company turned profitable immediately after the takeover. Was it the Midas touch of Harshad Mehta?

A small detail in the accounts of Mazda Industries was ignored. More than 90% of the total revenue came from stock market related activities.

Attention to details is a rare trait among many. It becomes even more rare when greed takes over and everyone is in a hurry to make money.

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This day, 24 years ago …

The Times of India dated 23rd April, 1992 carried a story that remained as the biggest scam in corporate India for a little less than 16 years. Ms. Sucheta Dalal broker the story of missing Rs. 500 odd crores. The issue was discussed in the Parliament and a Joint Parliamentary Committee was set up.

One of the biggest bull runs in the Indian stock markets cam to an end.

There are many interesting anecdotes and stories about this episode. In the aftermath of the event, the stock market reforms were undertaken and the markets were never the same. Many safety features were introduced and investing in the Indian stock markets became much safer.

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