March 12, 2001

Scape goat?
Now that he is out, market sources say that Anand Rathi was misled into offering his resignation when he accessed price sensitive trading data from the BSE surveillance department. In fact, Rathi planned to fight the charges, and was drafting a denial to the paper that scooped the news of his actions. Just then two BSE directors went to his office and convinced him that he should offer to resign in order to uphold the dignity of the exchange; they said that the board of directors would turn down his resignation. With barely 20 days for his term to end, Rathi was persuaded that the strategy would work; his closeness to the SEBI chief gave him added confidence. Some even say that Rathi had sought information from the surveillance team only when SEBI demanded to know if the pay-in was completed. Rathi has dominated stock exchange decisions so much, that SEBI probably failed to remember that surveillance was under the sole regulatory purview of the low profile Executive Director, A N Joshi. However, a flood of angry calls to SEBI and an aggressive media attack at the press conference that evening apparently sealed Rathi’s fate — that and the fact that the information which he gleaned from the surveillance department was shared with two speculator brokers. Though the decision about accepting Rathi’s resignation was left to the BSE Board, it was made clear to them that they had no option. When faced with a crisis, it is each person for himself, and SEBI was under pressure to be tough. Rathi paid the price. tough.

Professional rivalry
We are told that former BSE President M G Damani possesses a copy of the surveillance and had leaked the information about Rathi to a daily newspaper. He has since gone on record to reiterate that Rathi was completely in the wrong by seeking market sensitive information. Rathi is a very angry man; he blames newspapers for his ignominious exit and is threatening retribution by spreading canards about the writers. Interestingly, Anand Rathi was the broker-face that came closest to that of professional management at the BSE. His corporate back ground, his qualifications as Chartered Accountant and his smooth diplomacy were overshadowing what was once considered a highly successful stint by the aggressive and rabble rousing Damani. But Damani too is currently under a cloud, after the crushing Supreme Court judgement against broker with regard to turnover based SEBI fees. Demutualising bourses The present payment crisis and Anand Rathi’s controversial exit is finally expected to pave the way for professional management of stock exchanges. Although the BSE is preparing to elect a new President, and a former BSE chief is positioning himself as the future non-broker President of the bourse, the Finance Ministry is finally convinced that broker-run exchanges have outlived their utility. As soon as the present crisis is cleaned up, the ministry is expected to prod the regulator to corporatise stock exchanges and put them in charge of independent professional management. The question is, will more heads roll at other exchanges before the transformation occurs?

Future of IT
First Global, which is one of the brokerage firms being investigated for heavy short selling is sticking to their stand that there is nothing illegal about short sales. Shanker Sharma, the chief of First Global also says that they were among the first to say that the fate of IT stocks did not depend on India but the US markets and economy. As if to buttress this position, the firm is out with another report on the IT sector, but this time their stand is more ambivalent than it has seemed on television. According to First Global, the first Indian FII — Indian IT service companies still have high expectations built into their stock prices. The markets are expecting a phenomenal growth run of over 60 per cent per annum in earnings from the top companies in the next 4 to 5 years. The slowdown in the US will affect the sector. While there is evidence that the impending cut in capital expansion could take a toll on business prospects, there may also be new opportunities for Indian companies as the US industry looks for low-cost software solutions”. It also says that “employee numbers of Indian IT companies have to increase dramatically to meet revenue targets expected by the market” and that the high ’client concentration’ of revenues of some Indian IT companies which are resulting in lower billing rates, places these companies high on the risk scale making both their topline and profits are vulnerable. It will be interesting to see if SEBI can still pin a charge of short selling against the broking firm, and if their sales were restricted to IT companies, where their actions were apparently based on research findings.

Updated weekly.

The author's e-mail address is: suchetadalal@yahoo.com

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