The big bull of stock market

1. HARSHAD MEHTA
The Big Bull
of the Stock
Market

2. • Harshad Shantilal Mehta was born on 29 July 1954.
• His early childhood was spent in Kandivali, Bombay (present-day
Mumbai)
• His father was small time businessman.
• Mehta completed his B.COM in 1976 from Lala Lajpatrai College,
Bombay.
EARLY LIFE
2
Lala Lajpatrai College
• Harshad started trying his hand on different jobs in sales such as
cement, hosiery and sorting diamonds.
• His career finally witnessed a concrete stability in New India
Assurance Company (NIACL) where he was recruited as a sales
person.
• During this time, he got interested in the stock market and after a
few days, resigned and joined a brokerage firm.
• In the early 1980s, he moved to a lower level clerical job at the
brokerage firm Harjivandas Nemidas Securities where he worked
a jobber for the broker Prasann Pranjivandas Broker who he
considered his "Guru".

3. LATER CAREER
• In early eighties he quit his job and sought a job with stock
broker P. Ambalal affiliated to Bombay stock exchange.
• After that he became a jobber on BSE for stock broker P.D
Shukla.
• In 1981 he became a sub-broker for stock brokers J.L Shah and
Nandalal Sheth.
In 1984, Harshad Mehta along with his brother established a firm named Grow More Research and
Asset Management. In order to open the firm he took assistance of the associates as the Bombay
Stock Exchange had auctioned a broker’s card. In next two years he actively started trading.
• In the 90s, he started investing heavily in the shares of ACC (Associated Cement Company). The share price in
the ACC eventually jumped from ₹ 200 to around ₹ 9000. When asked, Mehta validated the fact of his heavy
investment into the shares of ACC by stating that the stocks had been undervalued.
• He created an aura by saying that his heavy trading corrected the market when it considered revaluing the
company at a price equal to the cost of building a resembling enterprise. He thus, brought forth the famous
“replacement cost theory”.

4. GOVERNMENT OF INDIA
Government of India and
Indian Economy were working
hand in hand. They developed
a strong bond with each other.
It was mandatory for the banks
to invest beyond a particular
threshold amount in
government securities.
The amount had day to day
variables but there had to
have a weekly cut off. Else RBI
would penalise them.
The smaller banks were even more regimented to
maintain such threshold limit. They also needed to
buy securities from banks that had securities in
surplus.
This is where Mehta used two instruments for his
scam!
1. Ready forward deal
2. Bank Receipts

5. MODUS OPERANDI
SCAM: Using The Loophole
1. Ready Forward deals were a kind of very short term loans that one bank
would avail from another in against bank securities. The then brokers would
work as a mediator conducting such transactions between these two banks.
Mehta was not dealing with two banks, he was dealing with whole lot of
banks. He became very good from rotating money from lenders to
borrowers. And whenever the stocks he pumped ran up a lot, he would
liquidate his position from the stock market and take care of any deficits.
In a single financial year (1990-1991) Harshad was entitled “The Big Bull”.
Magazines like Business Today got his photo published in the cover page. He
almost became an overnight sensation in the world of finance in India.

6. MODUS OPERANDI
SCAM
2. Bank Receipt was issued by the borrowing bank that would promise the lending bank about delivering the money at the
termination period of 15 days.
Mehta wanted more. He conspired with officials of two banks, the Bank of Karad and the Metropolitan Co-Operative Bank to
issue fake BR. These are bank receipts that did not have the backing of any bank security. He mastered it, grabbed the
entire deal in hand and then went for a ride with the entire banking system.

7. EXPOSED
• Sucheta Dalal ripped off Mehta’s dubious activity by exposing him in an
article in The Times of India in April 23rd 1992. In the article she
described exactly how Mehta had extracted ₹500 crore from SBI’s
treasury.
• Banks became clueless thus demanding their money, which resulted in
drastic downfall of Sensex.
• In January it was at 4467 points and it suddenly crashed to 2529 point in
the month of August. It drained more than ₹100,000 crore from the
money market. Those who trusted Mehta lost their savings of life.
• He was later charged with 72 criminal offences, and more than 600 civil
action suits were filed against him.
• He was arrested and banished from the stock market with investors
holding him responsible for causing a loss to various entities. Mehta and
his brothers were arrested by the CBI on 9 November 1992 for allegedly
misappropriating more than 2.8 million shares (2.8 million) of about 90
companies. The chairman of Vijaya Bank committed suicide.
• Mehta was under Criminal custody in the Thane prison. He died
following a brief heart ailment, at the age of 47, on 31 December 2001

8. REFORMS IN INDIA AFTER 1992 SCAM
• Formation of National Stock Exchange of India (NSE). The NSE introduced
online trading in 1994 which changed the dynamics of stock buying and
selling.
• Formation of Securities and Exchange Board of India (SEBI) post 1992, to
monitor NSE and National Securities Depository. Introduction of SEBI Act,
1992.
• The capital market now opened up nationally as opposed to being confined in
Mumbai.
• The exchange system started functioning based on satellite communications
that abolished geographical barriers. Formation of CII Code for Desirable
Corporate Governance developed by Rahul Bajaj; two major committees
headed by Kumar Mangalam Birla and N. R. Narayana Murthy which was
overlooked by the Securities and Exchange Board of India.
• A new committee was formed within the financial systems to overlook
the SEBI through the decision of the Janakiraman Committee.
• The committee ordered that the long standing practice of banks entering in to
”ready forward” and “double ready forward” deals with other banks be
restricted under the guidelines of the (RBI) to only government securities. The
committee made changes to the idea of custodian banks by making all banks
custodians rather than principals in transactions.
• The banks were ordered to have a separate audit system for portfolio
management of the banks whose adequacy was monitored by the RBI. The
RBI was given more power and their scope in the financial markets increased.

9. THANK YOU