Richest Indian On Shaky Ground

There is a grave danger if there’s overregulation—it results in a strangulating bureaucracy. But there are pitfalls of underregulation—it makes those who should be more on their toes to relax and become complacent. In the first, it’s the businesses that suffer; in the latter, it’s the retail investors and poor customers who bear the burden. This is why as India tries to ease the way to do business, she should ensure that the watchdogs are on guard, and don’t abdicate their responsibilities. A classic case where the regulators seem to have gone to sleep is the rich-to-richer story of Avenue Supermarts and its promoter, Radhakishan Damani. Although, the company is performing well, and its stock is flying, there are danger signals that should interest the regulators and watchdogs. At the moment, they seem to be sleeping, and seem unaware of what’s happening. Alam Srinivas reports.

- Alam Srinivas

A VENUE Supermarts’ business model seems to be on a shaky ground by its own admission; there seems to be some form of a ‘satta’ in the movement of the stock and the investors have absolutely no idea of what the firm will do with the ₹1,900 crore it raised from the public in an issue that was over subscribed 106 times.

In stock market circles, he was known as the bugbear of the Big Bull, Harshad Mehta, who was embroiled in a scandal in early 1992. One of the reasons for Mehta’s failure was none other Radhakishan Damani, one of the astute stock players. Like most stock brokers, Damani was bullish on the market until February 1992. At that time, Mehta was King of Stocks; the whisper that he was thinking of buying a stock would send it exploding in the valuation stratosphere.

At that stage, Damani went short, even as Mehta pumped in huge sums to buy stocks. The prices, as well as the index, zoomed. As the market rose, Damani increased his short positions, i.e. sold without possessing the shares with the intention to square them off once prices tumbled. They didn’t. Damani was trapped; his losses were huge and if the prices continued spiraling northwards, he would have gone bankrupt. But there was a silver lining ahead. Mehta was caught up in a payment crisis; media reports about his problems became public knowledge.

The markets tanked, even as the news of Mehta’s scandalous machinations—using money from the banks and other finance companies to invest in stocks—destroyed him. Damani was saved; in fact, he earned a bonanza. One can say he was lucky, or that he had a whiff of role to play in the Mehta’s downfall. One will never know but, after this episode, Damani was recognised as the wizard of the stock market. Six years later, he trapped the former Big Bull again in a similar bull-bear tussle.

Among the rich and wealthy