Harshad Mehta: The Man who started the indian stock market revolution
The “big bull” and Indian stock market trader Harshad Mehta was one of the high-profile players in the Indian stock market scam of 1992, which went in to the history books as the one of the biggest financial scandals in Indian history. His meteoric rise and even more meteoric fall have been the stuff of public fascination and gossip ever since. This blog is going to take you through Harshad Mehta’s life and times – how he rewrote the Indian capital market landscape, for better or for worse.
The Rise of Harshad Mehta
Harshad Mehta was born in 1954, in Mumbai and started out as a small time stockbroker. He began working on the stock market in the late 1970s and encountered a rocky beginning. But his big break-moment came in the early 1990s, when he stumbled upon a way to game a loophole in the banking system. This access allowed him to manipulate the stock market in his favour, and, by so doing, created one of the most spectacular bull runs in India.
Mehta’s game plan was a combination of plain old market smarts and financial engineering. He used that influence to create artificial demand for some stocks, causing them to surge. His favourite ploy was the so-called “ready forward” (RF) contract, an overnight loan collateralised by securities between banks. It was those trades that Mehta used to siphon the cash reserves of lots of banks and dump that money into gobs of stock. And his meteoric success with stocks like ACC, Zee Telefilms and others made him a star overnight.
Mehta had built up a vast empire by the early 90s. Fame and fortune ― along with a fleet of luxury cars, homes and a mass of followers-investors — came to him in the boom phase of the local stock market. The hero, for many, was Mehta, the purest reflection of what India’s financial markets could become.” But the reality behind the scenes was actually something quite different.
The Fall and The Scam
@PritikaMehta: Started getting into trouble, Harshad Mehta, once his efforts to manipulate the banking system and the stock market began to be sniffed out. The “securities scam” surfaced in April 1992 when journalist Sucheta Dalal wrote a column in The Times of India (the country’s major financial daily) about the use of bank receipts and artificial transactions in a bear cartel connected to Mehta to drive up the Bombay Stock Exchange.In April 1992, the journalist Sucheta Dalal broke the story of the scam. It was the beginning of the unravelling of his empire.
The scam was massive. A few thousand crores SFIO said Mehta cheated banks and financial instutions. His actions resulted in a huge crash in the Indian stock market, wiping out the savings of tens of thousands of small-time investors. The repercussions were many-fold with some of the biggest banks and finance houses getting into liquidity crunch due to getting stuck in the scam.
Harshad Mehta, 1999 It was 1999 when Harshad Mehta was carted off in handcuffs for taking the world for a ride on dodgy money. The case ground on for years, but Mehta’s reputation as a master manipulator was already set in stone. He died in custody of a heart attack in 2001, but he lived a life that was as fascinating as it was problematic.
The Aftermath of Harshad Mehta
Harshad Mehta is still spoken of in a tone of boundless awe and revulsion. On the one hand, he demonstrated to people that they could understand and game the Byzantine world of finance to construct great fortunes. However, his act laid open systemic shortfalls that plagued the Indian financial system—mainly, weak banking regulations and market oversight.
Mehta’s story may have ended disgracefully, but his impact on the stock market was undeniable. The scandal led to the introduction of wide-ranging reforms by the government ranging from companies law, as well as the share market and the banking sector, such as prudent banking norms, and the creation of the Securities and Exchange Board of India (SEBI), which is an autonomous authority to regulate the stock market of India.
The Harshad Mehta is a life and times lesson for the financial world. His rise and fall are a stark lesson on the importance of transparency, ethics and regulatory scrutiny in finance.
