The Telegraph
Since 1st March, 1999
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Stocks ignore raid alert

Feb. 22: Federal sleuths today raided stockbrokers embroiled in a share allotment racket but the roaring sensex didn’t stutter, effortlessly clambering to a new peak of 10224.32 points on the Bombay Stock Exchange (BSE).

The raids conducted by the Central Bureau of Investigation (CBI) began early in the morning in 27 places in Delhi, Mumbai, Ahmedabad and Hyderabad but it didn’t quell the enthusiasm of investors who continued to scoop up shares as the rally before Tuesday’s budget gathered steam.

The sleuths uncovered vital information on the Rs 32-crore scam perpetrated by a group of shysters who opened fictitious demat accounts in several banks and depositories and cornered shares in the initial public offerings (IPOs) of Yes Bank Ltd (YBL) and Infrastructure Development Finance Company Ltd. (IDFC).

Ahmedabad was the epicentre of the raids ' the city where Roopalben lives. She has gone into hiding ever since the scam broke two months ago but her brother-in-law Deepak Panchal surrendered before the CBI officials today.

The federal sleuths had raided the residence of Roopalben Panchal, two offices of her brother-in-law and the office of Karvy Stock Broking Limited, offices of two leading brokers and three banks.

The CBI claimed that Panchal and a few others had opened 27,064 demat accounts in fictitious names and applied for allotment under the IPO of IDFC. Each application for shares was marked below Rs 50,000 ' the cut-off limit for small retail investors. The scamsters confined themselves to the retail segment where the chances of allotment were greater and checks were not very vigorous.

However, the bourses remained unfazed by raids with the rally concentrated in bellwether stocks and infrastructure scrips which scored hefty gains in anticipation that this sector would get several benefits in the budget that finance minister P. Chidambaram will unveil on Tuesday.

Brokers are of the belief that as the budget approaches, investors are likely to turn more cautious and the activity will be more sector-specific.

“At the present levels when there are worries about expensive valuations, most of the investors do not want to take chances. They will only look at those segments which can gain from the budget,” said an analyst from a local brokerage.

This cherry picking was in evidence today when power and infrastructure stocks gained on hectic purchases by local and foreign investors. Noticeable gainers included BHEL, NTPC, Reliance Energy and Tata Power.

“Many states and the country are facing a huge power shortage. There are expectations that major concessions will be given to power companies to attract more investment. If the power sector gains, the equipment suppliers to this industry will also stand to gain,” the analyst added.

After opening the day on a better note at 10,179.26, the BSE Sensex shot up to touch an all-time intra-day peak of 10,237.61, before ending the day at 10,224.32, showing a steep rise of 56.21 points or 0.55 per cent over the previous day's close of 10,168.11.

Two cases registered

A CBI statement issued this evening said two cases had been registered against Roopalben Nareshbhai Panchal, Deepak Panchal, directors of Sugandh Estates and Investments Pvt Ltd, and certain officials of Bharat Overseas Bank Ltd and Vijaya Bank.

The statement said one financier had bankrolled Roopalben’s shenanigans by giving her around Rs 30 crore and asking her to invest in the IPOs.

The searches revealed that one financier, who cornered Rs.1.5 lakh shares of IDFC and 30,000 shares of YBL, had made a profit of Rs.4.6 crore. “Another financier has made a profit of Rs 3.88 crore. A third financier has sold 40,000 shares of YBL and 1,60,000 shares of IDFC,” the statement said.

The demat scam has threatened to undermine the market for new issues at a time when the market is booming and several corporate houses and banks are planning to come out with flotations.

The raids come just a week after finance minister P. Chidambaram said the government intended to crack down on the scamsters.

Sebi, the capital market watchdog, and the bourse authorities have also been instructed to carry out investigations into the scam.

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