Samir Arora, veteran investor and founder of Helios Capital, has come down strongly on a suggestion that foreign brokerages and media are conspiring to bring down the Indian securities market so that the brokerages' clients could buy at lower prices.
The CEO of Complete Circle Capital, Gurmeet Chadha, had posted that a "lot of effort" was being made by brokerages and a section of foreign media to bring down the markets.
To this, first, in an unusually restrained manner, Arora wondered if it wasn't "too much of a conspiracy theory". Then, he posted a longer and more stinging takedown of the logic of brokerages being party to such an effort.
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Under Arora's post, another Indian markets veteran Shankar Sharma posted in agreement, even writing that "no broker in their right senses" would peddle negative reports unless they "absolutely" believed something was wrong.
Flaw in the logic
In the longer post that explained the flaw in the logic, Arora pointed out that foreign institutional investors (FIIs) have more than $650 billion invested in India, and asked the reader to assume that around $20 billion of "new money" is trying to "manipulate its entry by making brokers write negative reports".
Arora showed how it would make little sense for brokerages to go along with this. "Broker has to also worry about the anger from the currently invested FIIs who do not want random, negative reports from its brokers," he wrote.
"If $20 billion of new FII money wants market to be down, there will be at least $100 billion from current FIIs (out of $650 billion) who will be really upset with their brokers."
Given this, he asked, if you are a foreign broker, what would you do? "Write a negative report so that some of your future clients can buy or write a positive report so that your current clients are happy and give you more business?"
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Shankar Sharma posted, "Anybody with extensive buy and sell side experience as both of us do, knows that negative reports don't sell. No broker in their right senses writes a negative report unless they absolutely believe there is something wrong ( we know a bit about such things) and broken." He added: "Conspiracy theories hold no water."
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