Harshad Mehta made the market euphoric, and, in the process, used banks and misused the stock market. He himself had become a hero, or you could say a ‘Don’, Vijay Kedia, MD, Kedia Securities, told Moneycontrol’s Kshitij Anand in an interview.
Edited excerpts:
The 1992 scam, in which Harshad Mehta allegedly committed a fraud of Rs 1,000-4,000 crore on the banking system to buy stocks on the Bombay Stock Exchange (BSE) had the market tumbling down. It was multiple scams, all rolled into one. What was the scam all about?
Kedia: Let’s understand this. Only two things in the world drive all scams -- greed and ego. Greed to make quick money and ego to beat the system and become invincible. That’s what happened in the 1992 scam as well.
Although I was new here, I feel that I was really fortunate to be present around that time because I tend to learn a lot from adversity.
Harshad Mehta made the market euphoric, and in the process, banks were used and the stock market was misused. He himself had become a hero, or you could say a ‘Don’.
What was the bigger damage, post the scam – money lost by shareholders or investor sentiment?
Kedia: There are two things that are common in every scam in the world. First thing, they’re very short-lived. Their life is like a moth, the darkness is a guest for a night.
And, the second thing is that they don’t end well. These two things are very common here. It damaged the fortunes of millions of market participants, such as investors and traders and bankers.
It also spoiled the sentiment of the market. The biggest damage was a dent on the image of investing. That took a huge hit. It reminded people of the scam of Haridas Mundhra, which happened in the 1950s.
That was the first scam after independence. And, that scam really shook the Indian economy and Indian politics. I remember back in the 90s after this Harshad Mehta scam, Indian Express wrote a half-page article and they titled it HM to HM, which means, Haridas Mundhra to Harshad Mehta.
The scam was severe, and it left a permanent scar on the capital market.
We were not there to witness it, but you braved through the storm. What was your experience? Anything you remember which you would like to share?
Kedia: I think is very clear that operators of any scam are not going to survive. They have a very limited life, but we don’t know if they will last for six months, or for two or three years.
I never followed any of his shares, except one, and that was ACC. This was the first stock I bought on the BSE. But, I bought that before he started his operation in ACC.
I sold my ACC shares very early -- the moment I realised that this stock is getting manipulated. I sold it for Rs 3,000, which I had bought for Rs 300. In no time, the stock went up from Rs 3,000 to Rs 10,000-11,000.
That was the kind of operation and frenzy which was going on in the market. He was like a god for so many people. He was the talk of the town, media star, and hot topic in parties.
Has the investment environment changed in 2020 compared to what we saw in 1992? Do you think the systems are more robust now, and there is a transparent communication flow to investors?
Kedia: The system has certainly changed. The pie has become bigger now. Now a thousand crore scam is nothing. It's something which happens every year or every six months, which goes unnoticed.
The pie has become big, the system is robust. As you said, the regulators are more vigilant and efficient. At the same time, as we know, thieves are more creative than the police.
Thieves only create new ways of doing scams and regulators learn about them later.
See what happened after the Harshad Mehta scam. What happened? KP scam was much larger than the Harshad Mehta scam, yeah, Ketan Parekh scam. Then Gitanjali, ILFS happened.
I don't think that anything has changed and I don't think anything is going to change also. The only thing which investors should always remember is that which is written in the railway bogies -- passengers should take care of their own belongings. So, one has to be vigilant all the time.
According to you, what were the key learnings for investors from the Harshad Mehta scam?
Kedia: The key learning is very simple, and it is the same that our parents taught us in our childhood -- evil begets evil. There is no shortcut in investing.
There is a quote of mine which says, “the majority of investors are unsuccessful in this market, because they want to become crorepatis overnight.”
Another quote of mine also says – “Remember, Rome was not built in a day, but Hiroshima and Nagasaki were destroyed in a day.”
People lost their fortunes, which they built in 30, 40 years, in one year. In one scam, you could lose all your things, all your savings of 30, 40, 50 years. So, one should always avoid these kinds of stocks, these kind of operations.
Read our entire coverage on Harshad Mehta here
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