Friday, January 12, 2018

How the market fall of 1996 impacted me personally...

Was reading the book 'Bulls, Bears and Other Beasts', written by Santosh Nair. Over 42 chapters spanning about 400 pages, this book crisply explores the evolution of India's stock market from mid of 80s to about 2010, a quarter of a century.

While reading this book, I couldn't but remember how some of these events impacted me.

I was reading about MS Shoes scandal of 1995. Remember that? Pawan Sachdeva, the promoter of the company wanted to raise some money from the market. The route he chose was a convertible debenture - cum - rights issue. To make the issue attractive to the public, over a period of three months, he and his cohorts manipulated the share price of the company from 270 to 505.

This caught the attention of regulators who initiated investigation and arrested Sachdeva along with three officials from SBI Caps and three officials from SEBI. That was the beginning of a long correction in the market that lasted till February 1997, when the then Finance Minister, P Chidambaram, presented the 'Dream Budget'.

In the mid of '95, I had joined IISWBM, Kolkata (then called Calcutta and affectionately called 'Cal') for an MBA specializing in Finance. Daily reading of  'pink papers' like 'ET' and 'Business Standard' was sine qua non for MBA students specializing in Finance. 

The papers used to be full of news about MS Shoes. It it was not a full page ad about the rights issue, it would be an opinion piec on the innovative approach to fund raising by the company.Of course, you could not turn the 'money' page without being bombarded with news about the rising share price of MS Shoes. 

Those were exciting times. FIIs were making a beeline into the country and there was constant demand for MBAs to cater to the new area of equity research.

One would have said that it was the best of the times to be specializing in Finance. 

The market was trending high by the day and the demand for equity researchers were increasing as more and more FIIs set shop in the country.

One of the institutions that focused on equity research was ICFAI (Institute of Chartered Financial Analysts of India), located in Hyderabad. The Institute was into Finance education with its flagship program awarding CFA (Chartered Financial Analyst)Charter. While this charter was different from CFA charter provided by the US based Organization, the curricula and the exams were equally rigorous. CFA program was specifically focused on the Financial Analysis and Investments leaving the financial control activities to the accountants.

CFA had three levels. Level 1 was called DBF (Diploma in Business Finance) and level 2 was called ADF (Advanced Diploma in Finance). Once you complete level 3, you are awarded the CFA Charter. 

ICFAI also had an arm that was doing equity research. Their job was to prepare equity research report of various companies. These reports in turn, were sold to Institutions that were interested in investing in those companies. 

The Institute used to get these reports generated by MBA students who did this under guidance from professionals as a part of their summer internship. Summer Internship (also called Summer Project) with ICFAI was the most sought after assignment in tier 2 MBA campuses, because they were generous paymasters. While other companies used to pay Rs.5000 per month (slightly less than USD 100 at current exchange rates), ICFAI used to pay Rs.15000 per month to an intern. 

While doing MBA, I had also enrolled for the CFA program. By end of '95, I had completed my level 1 (DBF). 

When ICFAI came to the campus for recruiting interns, I was ready. We had to clear a rigorous test cum interview process to be eligible for internship. Three students from the campus, including yours truly, got selected for the internship.

The Internship pay was Rs.15000 per month. I was on cloud nine. (because I was very happy)

Unfortunately, by the end of '95, cloud of trouble and uncertainty enveloped the Indian Markets. First sign of trouble was when Sachdeva and his cronies were arrested and convicted in the MS Shoes scandal. Markets started drifting down. There was pessimism all around.

One of the immediate casualty was a significant drop in demand for research reports. Who needed them when no one was investing?

By mid of '96, as we were getting ready for summer internship, the market was lackadaisical. ICFAI was caught in the bind of contract to give us internships. They send us a revised offer, reducing the internship pay to Rupees 3000 a month !

Of course none of us accepted the offer. In retrospect, that decision was wrong, because the experience would have been hugely beneficial. But our ego was at play. From strutting around the campus with a pay of Rupees 15000 per month to fall to 3000 per month was a disgrace which we were not prepared for, and that is what ICFAI wanted probably.

All ended well as I managed to get an internship with another small company to do research on Power Sector, an area which I was familiar with...

Reading about MS Shoes and the associated market down turn brought forth so many memories....

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