Harshad Mehta’s Strategy is considered to be one of the most effective strategies in the Indian markets. His empire grew at such a pace that many crores were accumulated over the years through various illegal methods. The person who once came to Bombay with limited funds made a fortune out of his limited funds.
Harshad Mehta and gang started emulating foreign banks like Citibank and lots of others with foreign degrees and technology. Harshad Mehta and his brother Ashwin Mehta had the experience, knowledge, and understanding that surpassed these banks, and shortly the non-trading banks started trying to find passive brokers. His self-defined ‘replacement price theory cleans up any whispers of value manipulations.’ He argued that the corporate was undervalued and its honest price ought to be set by the price needed to make the same company within the current times.
Though RBI guidelines mandated banks to handle different banks in the event of security transactions directly, they opted to rely on agents as it was more comfortable and less time-consuming. Many banks utilized a procedure called Ready-forward deals to raise the worth of the government bond holdings. RFDs were procured short-term 15-day loans from 1 lender to another.
That left banks–both the public sector and private business –with small funds for industrial lending. Many of these were brokers in the currency market, in which corporate bonds and government securities were exchanged.
Stock Market requires high potential of thorough research, and proper analysis is necessary towards a brilliant success. It’s not only in the stock industry- Perhaps if any business sector needs to grow its functions, research and analysis are mandatory.
Harshad Mehta used the Strategy that would have never come to an end unless a journalist Sucheta Dalal broke the business’s smooth functioning through one of her articles in The Times of India.
The Harshad Mehta Scam 1992, a Sony Liv web series, has been creating a lot of buzz on the internet and have got raving positive words of mouth. It’s a show that will make you bound to be seated on your comforts and binge-watch the entire series in one shot. All praise goes to the maker and the Cast- especially Pratik Gandhi for portraying the challenging role of Harshad Mehta in the series.
Mehta’s Strategy was to buy shares in bulk at premium rates. He used the theory of buying and selling, and as a guarantee, he used the funds of the same institutes from where he had borrow funds. In simple terms, lending and giving was the ideal Strategy to help him furnish the stock market. If ever you follow the Indian Stock Market in the late Nineties and Eighties, the name Harshad Mehta cannot be ignored.
The charm and the power that Harshad held in the late 90’s in the stock exchange. No, one would question him, and with his exemplary excels in the stock market, he would continue manipulating the stock prices with his business mind. The year 1992 was an analog world where financial systems existed in silos. A stockbroker could easily convince any mid-level PSU bank staff to lend money’s to someone like Harshad Mehta by presenting a fake bank receipts.
Harshad Mehta countered that by stripping cash from the stock exchange to keep up the demand. He argued that the market had simply corrected the undervalued stock when it revalued the company at a price equivalent to the cost of building a similar enterprise.
Mehta courageously tied up with bank personals to receive dummy Bank Receipts issued to him. Harshad used the Bank Receipts to produce to a different bank to lend him money for investing in stock markets. When the scam came out to the public, the fund flow into the stock market started crashing, and share prices saw a drastic downfall. With the high weightage of 4467, it came down to 2600 in August, the shortfall in SBI, and the subsequent disclosure of the payments by NHB produced a catastrophe in the securities market.
With the daring approach and the bold nature, Harshad Mehta fraudulently laundered around Rs 24,000 into the stock market for three years. His happy days witness the dark stage on 23rd April 1992, when Ms. Sucheta Dalal from Times of India exposed the scam that shocked the entire country. The bankers were shaken by the news and started to verify their bank receipts- In this period, the Indian Stock Market saw a downfall from 4,467 to 2,000, wiping out 10,000 crores of market capitalization in a single day. He diverted these crores to rupees to the Indian stock market, mainly rigging the stock prices of his favorite stocks, ACC, Videocon, Sterlite Industries, etc., and carrying the BSE to new heights.
Besides, other brokers were unable to hide the ‘holes’ in the investment portfolios of some banks by replacement deals. One by One, numerous fake deals were all coming into limelight. Bank of Karad and Metropolitan Co-operative Bank, which had issued BRs and SGL forms without any underlying securities, suffered massive losses and went under big problems. In the 80s, banks had to park 63.5 percent of their RBI deposits in cash or specified securities to comply with the CRR and SLR requirements. This brought either no interest or interest way less than the market rates. Around 40 percent of the remaining deposits were earmarked for priority sector lending.
This brings an end to the insights of the Harshad Mehta, Scam of 1992- however, I would stress to take a look at the Web Series Scam 1992 on Sony Liv. The series falls to be in the top list of Best Series of 2020– which undoubtedly grabs eyeballs and gives us an in-depth about the life journey of Harshad Mehta along with the strategy he used to achieve success in the stock market.