Book excerpt: How bulls, bears & other beasts play the Indian stock market

Sometime in October, Govind Bhai suggested that we go after this energy player, which was a darling of fund managers at the peak of the bull market.

This stock too had taken a pounding in the market downtrend. But there were additional factors weighing down the stock. Some ill-conceived acquisitions and glitches in the company’s products had soured sentiment for the stock, and by mid-September, its price had nearly halved from its record high. By early October, the stock price had fallen below Rs 100, which was when GB suggested the stock as a potential target for a bear raid.

I looked at its price chart and told GB that it did not look very appealing to me.

‘The stock is already reduced to one-fourth of what it was at the start of the year; assuming there is still some downside left, how much lower can it go?’ I asked GB.

Bull_bear_beasts_Santoshsir_book_cover_380‘You forget one of the market truisms I told you long back, Lala: bull markets have no tops and bear markets have no bottoms,’ he retorted.

‘I haven’t forgotten any of your teachings, Govindbhai. The charts are telling me that there is a desperate attempt to keep the stock price above Rs 100. And I am told the promoter is well networked with fund managers and other investors to be able to defend his stock price in a crisis situation,’ I countered.

‘That makes the game all the more interesting, doesn’t it?’ GB said.

‘Maybe. But there are other, easier stocks to make money off, so why get into this one?’ I said, trying to reason with him. I was beginning to suspect that he may have a personal reason for going after this stock. ‘Never let your ego affect your judgement’ is one of the cardinal rules of stock trading. Some players have come to grief violating this rule, but I have also known traders who would, once in a while, indulge their egos and even get away with it.

‘Trust me on this one, Lala, there is some good money to be made here,’ GB persisted.

I was now beginning to feel that he may know something the rest of the market probably did not.

‘I am in. So what’s the inside dope, then?’ I asked.

‘Ah, Lala, since you are being too nosy and I trust you enough, let me tell you this: Old Fox feels the stock is ripe to be taken down,’ GB said.

Old Fox was the code name for one of the most astute players on Dalal Street who had few equals when it came to both trading and investing. I trusted Old Fox’s judgement, but not so much as to blindly follow him into a trade.

Still, I was ready to be a part of this operation because I was curious to see how much lower this stock could be beaten down.

We kept hammering away, and the stock once again fell below Rs 100. The overall downtrend in the market helped our cause. The stock kept dropping a few percentage points every day. But to make big profits, you needed that one round of panic selling that would help you cover your positions without sending the prices shooting up.

We were waiting for that one big break, but it seemed to be taking forever, despite the weakness in both the stock and the overall market. We suspected that the promoter was doing his best to defend the stock price. The settlement of the current F&O series was barely a week away. We were wondering whether to move in for the kill and risk a loss or cover up our positions for a modest profit.

We finally got the break we were waiting for. GB got to know from a company insider that the promoter was taking a morning flight to Germany on Friday to meet some investors over the weekend in connection with the company’s fund, raising plans. Old Fox proposed that on Friday morning we hammer the stock’s futures with all our might.

‘This could be our best shot at breaking the price; I don’t think there is anybody in his absence to organize a fightback if the price falls sharply. And even if there is, I doubt that person will be as effective as Mr T (the promoter) himself,’ Old Fox told GB.

As soon as the market opened on Friday, we fell on the stock futures like a pack of wild dogs. And then, we had our second stroke of luck which made me feel the gods were on our side that day. The company had been facing trouble over the quality of its products exported to international markets.

Just the previous day, there had been a major problem with its products at the location of one of its US clients. This news was flashed by a foreign newswire service around noon. After that the stock price went into a free fall accompanied by heavy volumes. It finally ended the day around 40 per cent below its previous day’s closing price. We covered our positions almost entirely in that fall.

‘So, Lala, are you now convinced that the stock still has enough room to go down, even after having fallen 75 per cent from its peak?’ Old Fox asked me the following day, when we all met for lunch at his place. I understood that GB had filled him in on my initial reluctance to participate in the operation.

‘Maybe or maybe not, but I guess the bulls would have been demoralized the moment they realized that it was Old Fox that they were up against,’ I replied.

Old Fox laughed. I knew he was secretly flattered.

Excerpted with permission from Pan Macmillan India from the book Bulls, bears & other beasts - A story of the Indian stock market. Author: Santosh Nair; Publisher: Pan Macmillan; Pages: 416


Published Date: Oct 20, 2016 12:42 pm | Updated Date: Oct 20, 2016 12:42 pm


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