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....

Excerpts from the book Bulls, Bears and Other Beasts: MS Shoes Scandal

This is an excerpt from the fascinating book 'Bull, Bears and Other Beasts' written by Santosh Nair.

I remember reading about, and not understanding anything, about MS Shoes Scandal that effectively started the stock market correction of 1995. From the book....

---Meanwhile (in 1994) the party in the the primary market continued. Junk companies and their dubious promoters were having a free run, with the underlying strength in the economy giving investors the confidence that the best was yet to come. Then in February 1995, investors got their first reality check as to the quality of companies and promoters that were raising money from the market. The botched MS Shoes public issue revealed how easy it was for promoters and merchant bankers to hoodwink the regulator. Worse still, the episode also exposed the lax oversight by SEBI in this particular case, and the corruption within its ranks.

The Pawan Sachdeva-promoted company wanted to raise Rs.700 crore to fund a hotel project and a yarn project. It decided to make a composite public issue-cum-rights share offering. The public issue was for fully convertible debentures - bonds that could be converted to equity later on. 

MS Shoes was already listed, and the promoter, in collusion with associate brokers, ramped up the stock price to charge a hefty premium for the issue. Shares of MS Shoes climbed from Rs.268 in July 1994 to a record high of Rs 505 by January 1995, thanks to rampant manipulation by brokers backed by Sachdeva. When the stock price of MS Shoes collapsed, the brokers who were buying on behalf of the company could not meet their pay-in obligation to the stock exchange. The BSE had to be closed for three days as the exchange officials sorted out the mess caused by defaulting brokers. Sachdeva was raided by the taxmen, and soon after arrested by the CBI. FIRs were filed against two officials of SBI Caps, the merchant banker to the issue and three senior SEBI officials.

Excerpts from the book Bulls, Bears and Other Beasts: How BSE scored a self goal

In his book 'Bulls, Bears and Other Beasts', author Santosh Nair presents a fascinating story of how BSE (Bombay Stock Exchange) scored a self goal and allowed unfettered growth of NSE (National Stock Exchange).

The history of this country is replete with antediluvian forces with vested interest hindered the progress of the country by opposing technology and innovation in their areas. Ideology did not matter. Be it communists in West Bengal who opposed computerisation and delayed the economic progress of the state or the 'Bombay Club' of leading industrialists who opposed the opening up of the economy or as the case below shows the brokers and jobbers at Bombay Stock Exchange....

Progress did not matter. Only vested interest mattered..

Read on the case of BSE that opposed computerisation, and how it pushed the exchange back a lot, as told by the author...

---(During the early 90s), there was no dearth of stock exchanges across the country, but BSE was by far the biggest and the most important of them all. It had the maximum number of companies listed on it, and was more liquid compared with its peers. CSE (Calcutta Stock Exchange) came within respectable distance of matching it in terms of liquidity, while Delhi Stock Exchange was a distant third. 

While many retail investors in far-flung towns preferred to transact on BSE, they invariably ended up getting poor prices because their orders would be routes through a chain of sub-brokers to the main broker in Mumbai. Each sub-broker in the chain would charge his commission, with result that brokerages charges alone would amount to 3-4 percent or even higher. Finally whether the investor got a good deal or not depended on how efficient and scrupulous the main broker was. More often than not, the purchase price was marked up closed to the highest price of the day and the selling price closer to the lowest level of the day. Brokers could afford 'take-it-or-leave-it' policy with their retail clients.

This is not to say that BSE did not have progressive minded members. Mahendra Kampani, when he was president of the exchange tried hard to computerise the trading process and convert the open outcry system int a screen-based one. The advantages of electronic trading were twofold. One, liquidity would increase as more investors could simultaneously access the system. This would shrink the spreads dramatically. More importantly, there would be greater transparency about the prices at which shares were actually bought and sold.

---this move would have dented the profitable business of many jobbers and brokers who thrived on the wide spreads and opaque prices resulting from low liquidity. 

--Not surprisingly, Kampani faced huge opposition from the broking community, and the proposal was put in cold storage.

What the broker-jobber lobby did not realize was that in blocking computerisation, they had dealt a crippling blow to BSE, a blow from which the institution would never really recover. 

-- a veteran BSE broker (who had once been a President of the exchange) told me how the exchange's electronic trading plan never got the backing that it should have from the government. In fact, it appeared that some influential people in the government wanted to marginalize BSE.

--- my own view is that (sic) somewhere along the way, BSE broker's lobby had become too powerful for its own good and was beginning to be seen as a challenge to the government. In the late 80s, when former UTI chairman Phervani, tried to get a broking card for a UTI subsidiary, he was denied it. UTI did huge business with the brokers and was aware that it was being regularly fleeced on quite a few transactions. To get around the problem, UTI decided to have its own broking card. But the big boys of Dalal Street would have none of it. One, the brokers who made a living off UTI's deals would lose a big share of the business. Two, giving membership to UTI would lead to similar requests from other institutions too. 

---When SEBI tried to get brokers to register with it for a fee, the proposal was stoutly opposed by brokers and jobbers. They refused to carry out transactions, with the result that BSE had to shut down for a week in April 1992.

Finance minister Manmohan Singh, who visited Bombay during that time, came down to BSE to meet the agitating brokers. Brokers behaved badly with the finance minster, shouting slogans and booing him. This would have piqued the government. A leading exchange of the country holding the government to ransom would have served to drive investors away..

Thus it was that NSE, set up with financial institutions as its principle shareholders, and originally meant to be a trading platform for wholesale debt, was given permission to start and exchange for trading in shares too. It commenced operations in November 1994, overnight changing the rules of the game.

From the first day of its operations, NSE started operations with an electronic trading system. NSE's biggest contribution to the stockbroking industry was the vast new breed of brokers it spawned. Anybody could become an NSE member by paying a (refundable) deposit fee and clearing an exam. 

The introduction of electronic trading rapidly shrank the spreads and dramatically improved liquidity. Liquidity, in turn, attracted more players, making the market even more liquid. No longer the brokers could fleece the investors as prices were transparent. 

In barely eleven months of going live, the NSE nosed past the BSE in terms of daily traded turnover, becoming the top exchange in the country.

That must have hurt...

Excerpts from the book Bulls, Bears and Other Beasts: How BSE used to work in the eighties

In the fascinating book 'Bulls Bears and Other Beasts', author Santosh Nair describes the workings of the Bombay Stock Exchange (BSE) in the 80s and early 90s. The story is told from the perspective of his protagonist Lalchand Gupta

This excerpt explains how BSE used to work.

...A broker could have seven of his dealers in the trading ring, apart from himself. Orders placed by clients over the telephone to the broker's office would be conveyed to the dealers on the trading floor, who would  then execute the trades. Before the days of the hotline, brokerage firms had runners who would rush to the trading floor to relay orders.

....For one month I was assigned to a senior, and had to observe him as he negotiated deals with brokers and jobbers. 

A jobber is a professional speculator, and buys and sells shares for himself. He does not have any clients. His business is to speculate on which way the prices are moving and make a quick profit on it. He does not want to buy shares and keep  them for long term as investors do. But, to do business on the floor of the exchange, he needs to have a broker as a sponsor. He shares a part of his profit with the broker under a pre-decided agreement.

In a way jobber acts as an agent of the broker. If the jobber defaults on a deal, the broker is held responsible by exchange. Hence brokers chose jobbers with care. Jobbers were an important source of liquidity and brokers would always deal through them. 

A jobber helped create liquidity in a stock by offering two-way quotes and also helped in price discovery. He took on the risk, confident that he would be able to sell whatever he bought and buy back whatever he sold. 

In those days there were 'counters' for individual stocks. Jobbers and brokers dealing in Reliance shares would gather at a certain sport, those dealing in TISCO in another spot and so on. 'A' group shares, where a buyer or seller could carry forward trades the next settlement by paying an interest charge known as badla, were called vaida. 'B' group shares, which were not eligible for carry forward were known as rokda (Cash), since they had to be settled at the end of the fortnightly settlement cycle.

There was a public address system on every floor of the stock exchange building, on which would be broadcast the prices of most A group stocks, and some times B group stock if there were big moves on them. For a price, brokers could get an extension of that system so that they could hear the broadcast sitting in their offices. Brokerages wanting to cut costs would usually station one of their employees in the corridor of the exchange so that they could alert their offices about important announcements.

The trading ring was on the first floor. Outside both the first and second floors were huge blackboards on which an employee of the stock exchange would write down the prices of the most actively trades stocks, updating them every thirty minutes.

The trades done on the floor of the exchange had to be entered in the sauda pad. Every sheet of sauda pad had five columns for five details about the deals - the clearing number of the broker one has dealt with, whether shares were bought or sold, the name of the stock, quantity of the shares and the price at which the deal was done. Disputes would arise if one broker erred in recording the quantity of shares or the nature of the transaction in his sauda pad. The stock exchange would then issue an objection memo, known as vaanda kaapli, to the two members and ask them to sort out their disagreement. 

The colour of the sauda pad itself contained information about the traders. Broker-owners had pink pads while their employees and jobbers had blue ones. If the two parties failed to arrive at an agreement, the pink sauda pad would prevail since the broker was accorded a higher weightage in the caste system of the stock exchange. 

Around half past five in the evening, the stock exchange would publish the 'bhav copy', a report listing the high, low and closing prices of the stocks traded that day. It was not done scientifically, but was broadly reliable. Its compilation was done by a stock exchange official collecting the prices by talking to the brokers and jobbers and by checking their sauda pads.

The stock exchange issued only a limited number of bhav copies, so there was a scramble to get them. Some ingenious players found a way to profit from this by taking photocopies of the bhav copy and selling them outside the exchange for a few rupees.

After trading hours there operated an unofficial market for some of the more liquid stocks. this was called the kerb market and, true to its name, the dealings were conducted on the street outside the stock exchange. The prices in the kerb market would be at a premium or discount base don the closing prices on the stock exchange, depending on the sentiments and events. 

Today, it all looks fascinating, the level of primitiveness that existed in the stock markets just about 30 years ago. It is not for nothing that people did not trust stock market and called it gambling. With the lack of transparency and the level of manipulation, it was akin to gambling, retail investors stood no chance.

Book Review #33: Bulls Bears and Other Beasts: Author: Santosh Nair

The book, Bulls Bears and Other beasts tells the story of the evolution of equity markets in India as seen through the eyes of the protagonist Lalchand Gupta. While the visible hero is Lalchand, the invisible hero is the Indian stock market ecosystem, including the stock exchanges, SEBI (Securities and Exchange Board of India) and the GOI (Government of India) that introduced significant market reforms that catapulted the Sensex from 750 in the 1990 to almost 34000 by the end of 2017.

Both stories run in parallel in this fascinating book. One is the story of Lalchand himself, his ups, downs, fights, wins and loses. You tend to sympathize, empathize and get excited with him. The other is the evolution of India from a closed economy - consisting of close knit group of powerful brokers, market manipulations, only one Institutional Investor (UTI), minimal retail participation in the markets and a slowly growing economy - to open economy - consisting of globalization, SEBI, National Stock Exchange, wider retail participation and of course the mother of them all the arrival of Foreign Institutional Investors (FIIs)

Having worked with Economic Times and then with Moneycontrol.com, Mr.Nair writes from a vantage point of having 'been there, done that'. He is as much an author as a participant in this brilliant book.

This well written, fast paced and easy to read book paints a large canvas, the evolution of equity markets in India starting from the beginning of the tumultuous years from about 1988. Lalchand is a product of the Mumbai (it was called Bombay in those times) underbelly of the 80s. He was born and brought up in the slum areas and got into lot of bad company. However, he quickly corrected himself and while working in a chemical company, got opportunity to know about the workings of the stock market.

Buy the book 'Bulls, Bears and Other Beasts' @Amazon

In the early eighties only few stock exchanges existed in India, the biggest of them being Bombay Stock Exchange (BSE) followed by Calcutta Stock Exchange (CSE). In the late eighties, where this story begins, there was hardly any retail participation in the stock market. Easy money was made by a lucky few who has subscribed to the IPOs of MNCs. UTI was the only domestic institutional investor. Brokerage rates were 1.5 percent and investment based on the fundamentals of a company was still in its infancy. There was hardly any publicly available information on the companies. A lot of 'research' done those days would constitute as insider trading today.

More than the stock market professionals, company promoters used to speculate heavily in their own shares through their favored brokers, known as 'house brokers', who were known to be proxies for the promoters.

UTIs business was crucial to the prosperity of the brokers, since it was the largest institutional investor. Since UTI traded in large blocks of shares, there was good money to be earned by way of commission. More money was made by front-running UTI trades. If it was a buy order from UTI, the broker would buy shares on his personal account. Then when the block purchase was done, the share prices will go up and the broker will sell his personal stocks and make good fortune. The reverse process happened in case of sell order from UTI.

There were few high rollers like Nimesh Shah, Manu Manek and Ajay Kayan who were revered and feared at the same time for their ability to make or break a company. Sometimes the companies fought back. The personality clashes between stake holders is very exciting to read. For example, the story of Manu Manek's fight with Reliance Industries makes fascinating reading.

Prior to 1995, the stock market processes and reporting were very primitive. Most of the transactions were manual and used crude forms of data entry and reporting tools. Speakers installed in various trading floors were used to communicate and blackboards were used to update the prices of the frequently traded shares. Trading data was entered in colour coded sauda pads, end of the day reporting was through bhav copies and disagreements were sorted through mutual discussion based on a strictly observed 'caste' system of the stock exchange.

When you are discussing India's stock market, you cannot avoid Harshad Mehta, the original big bull. The way he manipulated the banks to fund his stock purchases, how he routinely moved money between money market and stock market, how he ran up the prices of ACC to unheard of 10500 rupees based on a vaguely constructed 'replacement cost' theory, how he spend lavishly and attracted attention to himself and finally how this ponzi scheme that he ran was discovered, he and his cronies were arrested and the markets went through a major tailspin....all are discussed in much detail.

The year 1992 was significant for the Indian markets. Significant financial sector reforms were initiated. SEBI (Securities and Exchanges Board of India, in the lines of SEC in the US) was formed. The office of the CCI (Controller of Capital Issues) was abolished. Companies were given freedom to price their IPOs as they wanted, (prior to that, the shares had to issued only at the face value), FIIs (Foreign Institutional Investors) were allowed in the country from October 92. Initially they were hesitant to come to India. In the first six months, by March 93, only 15 Crores of FII investments came to the country.

India's response to the Mumbai serial blasts of '93, form a pride of a place in India's history. One of the blasts happened in the basement of BSE on a Friday. By working overtime over the weekend, the staff of BSE made it operational for trading on Monday, showing to the world that India will not be cowed down by terrorism. 

The evolution of the Indian markets starting 1993 are fascinating to read. In the FY 93-94 alone, 770 IPOs raised about 13000 crores from the market. Most of them were raised by greedy promoters who raised money at crazy valuations. FIIs pumped in 5000 crores in the year. The highlight of the year was the NFO (New Fund Offer, used to be called IPO back then) of Morgan Stanley Growth Fund. It was a 15 year close ended fund, and raised 1000 crores against a target of 300 crores !!

It listed in the market at a discount to the face value. Many investors, who wanted to make quick buck, lost money. 

The history of India is the story of forces of modernization fighting against forces of status quo. It was no different in Indian markets. While there was a lot of suggestions to computerise and modernize BSE, the strong Broker Lobby opposed it vehemently. They did not allow new brokers into BSE by rapidly hiking the membership charges. They were blind to the regulatory changes taking place all around them. In November '94, National Stock Exchange (NSE) started operations and this led a crippling blow the entrenched interests in BSE.

This was a self goal by BSE

NSE and BSE were different like chalk and cheese. From day 1, NSE started operations with an electronic trading system. While NSE had a weekly settlement system, unlike BSE, positions were not allowed to be carried forward. Unlike BSE which was run by brokers, NSE was run by professionals and did not have a single broker member in its board. In addition, unlike BSE, which was restricted to Mumbai, NSE had a pan-India reach offering services across the country. Unlike BSE, where membership was severely limited and expensive, anyone could become an NSE member by paying a refundable deposit fee and clearing an exam. This democratized the trading ecosystem in the country unlike any other action. 

In just eleven months after going live, NSE overtook BSE in terms of daily traded turnover, becoming the top exchange in the country!!

While electronic trading had its benefits, it created certain pitfalls. Since the very nature of electronic trading was faceless, a group of brokers could get together and trade in a stock among themselves to give an impression of heavy volumes. 

Asian currency crisis hit the market in 1997 and led to a prolonged bear market. For the first time in India, companies started downsizing. Downsizing was unheard of in India till then and many equity analysts that were earning huge packages found themselves without jobs, worst the MNC brokerages that employed them downed shutters. There was bloodbath all around.

The book celebrates Indian market, warts and all. The rampant manipulation of IPOs in the mid 90s, the MS Shoe scandal, the high interest rates (retail investors received interest of about 16% on their bond investments, I still have some like ICICI money multiplier bond and Zero coupon bonds), the depression of the mid 90s, series of market reforms initiated by SEBI, P Chidambaram's 'Dream Budget of 1997 that revived the market sentiments, Asian Currency Crisis  of 1997 that led to a bear market, the retrenchment of equity analysts, rise and fall of Ketan Parekh, the boom and bust of 'New Economy Stocks', Unit-64 fiasco, IPO manipulation of the early millennium through benami Demat accounts, disastrous IPO of Reliance Power, the carnage of 2008 in the aftermath of subprime crisis, the run on ICICI Bank, the return of UPA in 2009 and the ensuing bull market, Satyam Scandal ...

All of these are covered in just enough detail to sate the curiosity of a reader who just want to have an overview or for a researcher who may want to dig deeper...

UPA 1s maiden budget of 2004 which abolished LTCG (Long Term Capital Gains Tax) and introduced Stock Transactions Tax was another major morale booster for the market and single-handedly enabled the arrival of long-term retail investors into the Indian market through expansion of mutual fund industry. 

Seamlessly weaved together with the story of the stock market is the story of Lala. His progressive elevation as a respectable broker, his father's demise, his brother's graduation, the playing out of his dreams...

In Lala, we see a pragmatic and ethical stock market professional, playing dual role of a bystander story teller as well as a successful market participant. There are lessons to be learned for a newbie investor there..

This book is a must read for anyone who is interested in the India's stock market. If you are an investor, this book will give you perspectives about the benefits of long-term investments in equity market, after all Sensex moved up from 750 in 1990 to 34000 today, an annualised return of 15% . If you are historian, this book has details about some of the critical incidents that happened in the markets in the last 30 years. If you are policy wonk, this book will give you some ideas of what works in the market and what does not.

Finally, for my generation, we were lucky and unlucky at the same time, I would say. We came of age around the 90's, when the major changes were initiated. To that extent, one could say that we were lucky to have been living through these exciting times. However, the sad part is, we lived our life by the day, oblivious to these path breaking changes and unable to yield any major benefits from them. In the last thirty years, people have won everything. lost everything and recouped the losses and became millionaires twice over. Many of us missed the exciting journey.

There is still time. India is just starting to grow. Join the fun and run with it....

I give this book a rating of 5/5, the second book in this series of '50 Finance Books' that is getting this rating.

How did you like this review? Please update the comments so that I can improve upon.

Buy the book 'Bulls, Bears and Other Beasts' @Amazon

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..