Excerpts from the book Bulls, Bears and Other Beasts: The key players

This is an excerpt from Chapter 1 of the book Bulls, Bears and Other Beasts by Santosh Nair. You can read the book review here. (Notes to self: Add link later)

Nemish Shah, Manu Manek and Ajay Kayan were the high rollers, revered by market players for their ability to make or break a stock. Manu Manek was more feared than respected because he could be downright ruthless to further his business interests. He had no qualms about hammering down the price of the very stock he had financed for a bull operator. Manubhai, who was considered something of a mini-stock exchange himself, could quickly figure out a bull operators capacity to support the stock he was operating. If the operator was weak, Manek would short sell the stock. And once the operator mad a distress sale, Manek would buy back the shares cheaper than he had sold them for, making a tidy profit in the process.

.....And he had one more strong point - an excellent rapport with the key officials in the Bombay Stock Exchange (BSE) employees' union. Call it a coincidence, but whenever Manek was in a tight spot over a trade, there would be a flash strike by the union, and the settlement would get extended by a few days, helping him to buy time. 

Manek was fearless enough - or reckless, as subsequent turn of events would show- to take on Dhirubhai Ambani in leading a bear raid on  the shares of Reliance Industries. The bear cartel heavily short-sold Reliance Industries, aiming to break the stock price. 

.... He also made some disparaging remarks about Dhirubhai for good measure.

Bears won the initial round as the stock price flagged under their relentless onslaught. But they had not bargained for an equally fierce counter-attack led by Anand Jain, Dhirubhai's key lieutenant. Jain and his associates took over the positions of the brokers and traders who had bought Reliance Industries shares, and also themselves bought as many shares as they could from the market. On the other side of these trades was the bear cartel,, which had short-sold Reliance shares or sold shares they never owned in the first place. 

As the share prices began to climb because of the demand created by Jain and his associates, the bears tried to get out of their position by buying shares from the market. But shares were in short supply, as most of them had been bought by Jain and company, and the bears' attempts to square up their positions only sent the stock price shooting up further.

The bears thought they could buy time by paying an interest charge to the bulls on settlement day to carry forward their trades to the next settlement. They were still convinced that if they hung on to their positions for a bit longer, the price movement would reverse in their favour. But the 'buyers' of the Reliance shares refused the offer of interest payment, and insisted that the bears deliver the shares, fully aware that they would not be able to. Frantic buying by the bears to square up their positions further drove up the stock price. The crisis led to the stock exchange itself being closed for a few days as the bears could not deliver the shares and the bulls would not settle for anything less.

A truce was worked out eventually, but not before a few bears were bankrupted and the legendary Manu Manek forced to eat humble pie..