A PowerPoint presentation on history of Indian capital market and scams in Indian capital market

Name: Prahlad Pd. Srivastava Roll no. : MBA 17/14 (GM)

Indian Capital Market before Independence: Indian capital market was hardly existent in the pre-

independence times. Agriculture was the mainstay of economy but there was hardly any long term lending to agricultural sector. Similarly the growth of industrial securities market was very much hampered since there were very few companies and the number of securities traded in the stock exchanges was even smaller.

 The Indian capital market is more than a century old. Its history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange (BSE).

History of Indian Capital Market:

Indian Capital Market after Independence:

Since independence, the Indian capital market has made widespread growth in all the areas as reflected by increased volume of savings and investments. In 1951, the number of joint stock companies (which is a very important indicator of the growth of capital market) was 28,500 both public limited and private limited companies with a paid up capital of Rs. 775 crore, which in 1990 stood at 50,000 companies with a paid up capital of Rs. 20,000 crore. The rate of growth of investment has been phenomenal in recent years, in keeping with the accelerated tempo of development of the Indian economy under the impetus of the five year plans.

Capital market is the market for financial assets that have long or indefinite maturity.

Capital market can be divided into two parts: one, covering the market for corporate securities and the other, covering the market for gilt-edged securities (securities issued by the central Governments and Quasi-Government bodies).

Capital market may also be divided into two segments: i) The primary market ii) The secondary market

New issues are made in the primary market. Outstanding issues are traded in the secondery market.

The Securities ScamThe capital market witnessed its foremost investment scandal in the form of securities scandal in the year 1992. It revealed the utter anarchy and lack of administration in the prevailing fiscal market. The money market at that time permitted funds to be relocated with impunity from financial institution and corporates into equity and consequently witnessed crores of bank's capital to transfer into brokers' account. This illegal market practice was later asserted as "legal and acknowledged". 

In an attempt to punish the tricksters, a special court was initiated and scrutinized around 70 cases registered by CBI. Surprisingly, not even a single trickster was found guilty by the dreadfully sluggish judicial system. As a matter of fact, the scamsters made frequent attempts to re-enter the market with same set of traps and resulted in losses to investors.

  The IPO scam

Soon after the entry of international organizational investors, the Control over Capital Issues was banned as the market saw heavy bull trend resulting in the revitalization of the secondary market from the previous scandals. The ban of Control over Capital Issues unlocked the prospects of massive scandal in Initial Public Offerings (IPO). The scam was executed in two parts; the first part was carried out by the firms that increased their market costs to incur profits in order to sponsor lucrative projects. The second part saw the unison of small time merchants, CAs, investment bankers and traders to hoist new firms and heave public capitals. 

The IPO scam prevailed for three long years from 1993-1996 and finally saw its downfall when the costs of the registered firm started deteriorating.

 

Scams in indian capital market

Favored share scamThe scandal was an outcome of the extensive cost fixing on the derivative market. Besides increasing fresh capital, advocates of Indian firms promptly coordinated general body authorizations to transfer shares to themselves on a privileged basis and at a considerable reduction to the market, thinking that the share prices would never see the ground. Conglomerates started this trend and accrued profits of nearly 55o crores until Securities and Exchange Board of India (SEBI) formulated strict guidelines to abandon the market practice.

  CRB's cardboard scam

The ` 1000 crore finacial multinational named as Chain Roop Bhansali (CRB) was the only biggest firm and most impudent of all to benefit and disappear in the loosened market ambiance of mid-1990s. The services offered by his firm entailed FC collection, mutual fund, banking, etc. The clearances obtained by the firm for the trading of these services required sufficient inspection by SEBI and the RBI and the fact that they managed to qualify shows the supervisory weariness of the regulators. Facilitated by the clearances and profitable credit ranking, CRB accrued greater profits based on high value financing. The CRB collapse not only affected the investors but also the other finance firms.

 

Plantation firms' scamSince few firms in mid-90s were subject to no guidelines, the plantation companies during that time also got away with profit protrusions. The plantation firms projected themselves as a part of IPO and assured massive returns. The investors were lured and the companies accrued profits from fake campaigns of around ` 8000 crores plus.

  Mutual Funds scam

After several mutual fund scams, the UTI bailout reflected the lack of proper guidelines in the Indian capital market. Since UTI was initiated under its own regulations, it was the tax payers who suffered the loss of ` 4800 crore in the process. After three years, the company was back purchasing Ketan Parekh's controlled scrips and incurring massive losses in the process. The evidence of the private mutual funds performance has also been inconsistent after hitting the downfall in 1999 and 2000. It took a considerable amount of time for capital market to win back the trust of mutual fund investors.

  The 1998 scam

The scamster of 1992 scam, Harshad Mehta came back with a bag of tricks again in 1998. This time he lured investors through a website by trading stock tips. His unremitting manipulation of several shares resulted in the much expected collapse of Bombay Stock Exchange.

 

Home Trade scamInitiated in 2000, Home trade invested rs 24 crore in promotional campaigns to attract investors. The scam affected 8 co-operative banks that lost ` 82 Crore in EPF scheme. The Chief Executive of Hometrade, Mr. Sanjay Aggarwal was convicted by Nagpur Police later.

  DSQ Software Scam

In the year 2000 and 2001, the Managing Director of DSQ Software, Mr. Dinesh Dalmia, was held responsible for ambiguous mergers and prejudiced allocation of the amount of upto ` 595 Crores. He was later convicted in the year 2006.

  Satyam Scam

After manipulating the firm's documents for several financial years, the former Chairman and Chief Executive of Satyam Computers, Mr.Ramalinga Raju, was arrested for committing scam, following unethical practice and forgery. He showed greater profits and committed fraud of ` 700 crores.

- See more at: http://business.mapsofindia.com/investment-industry/top-10-investment-scams.html#sthash.aApTSpJH.dpuf

: http://business.mapsofindia.com/investment-industry/top-10-investment-scams.

http://www.vitt.in/market/capital.html#sthash.otr89YsD.dpuf

http://www.vitt.in/market/capital.html#sthash.otr89YsD.dpuf

References

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