The Ketan Parekh Scam: The Crash that Shook the Nation

3177 words 13 pages
The Ketan Parekh Scam
The Crash that Shook the Nation

The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike. More so, as

the Union budget tabled a day earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex. This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. SEBI also decided to inspect the books of several brokers who were suspected of triggering the crash.

Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to their capital market exposure. This was after
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This came to be known as the dotcom boom. 8 A bull run is an uptrend in the stock markets caused by the rise in the price of shares, sustained by buying pressure of actual investors or news of favorable economic growth, decontrol and political developments. 9 The National Association of Securities Dealers Automated Quotation System (NASDAQ) is a US-based stock exchange, which comprises largely of technology stocks. Started in 1971, NASDAQ is the first screen-based, floor less trading system and the second largest stock market in the US.

(Refer Exhibit I for BSE Index movements). HFCL soared by 57% while Global increased by 200%. As a result, brokers and fund managers started investing heavily in K-10 stocks. Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10 stocks, and saw their net asset value soaring. By January 2000, K-10 stocks regularly featured in the top five traded stocks in the exchanges (Refer Exhibit II for the price movements of K-10 stocks). HFCL's traded volumes shot up from 80,000 to 1,047,000 shares. Global's total traded value in the Sensex was Rs 51.8 billion10. As such huge amounts of money were being pumped into the markets, it became tough for KP to control the movements of the scrips. Also, it was reported that the volumes got too big for him to handle. Analysts and regulators wondered how KP had managed to buy such large stakes.

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