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Wednesday, February 4, 2009

Be(ar) Aware : From The Street

One of the biggest fears for an investor in a bear market is the fact that he is in a sense trapped.The value of his investments is very very low. At this point he has to make a choice – either stay the course till his investment posts a return giving him a PROFIT or pull out immediately thus accepting a certain degree of LOSS .
If he decides to stay the course then he has to contend with the bear market.A market that is ‘played’ by people who try to make money even in such a climate. Sellers not buyers call the shots and at such a time many traders get together to form infamous groups called ‘BEAR CARTELS’. The Indian stock market is not immune from attacks by such cartels. Many companies in the current marketplace have fallen victim to such cartels. Any of these companies could have been ones that you invested in and many companies you are investing in right now could fall prey to these cartels in future.
The biggest of companies are susceptible to bear maulings. When a market turns from being bullish to being bearish then bear cartels start operating. A few traders get together and decide to co-ordinate their efforts so that they’re able to drastically bring down the price of a particular stock.They start selling or shorting mass quantities of a company’s stock thus driving the price down by significant numbers.
An operating bear cartel is very much like a mafia. They target a stock that they believe can be damaged and put out a ‘hit’ on it like a mafia. Ultimately they shoot the price of the stock down with similar cartels and end up achieving their goal of profit.
Some of India’s biggest companies have fallen prey to the actions of these vicious cartels.
A few months ago immediately after the crash of Lehman Brothers, ICICI Bank fell prey to a bear cartel. Rumors were spread that ICICI was involved and positioned with Lehman Brothers and that it too would share a similar fate to Lehman Brothers. People who believed this panicked and sold ICICI bank shares in huge numbers that caused a fall in the company’s share prices mostly in September. The situation calmed down only after the central government issued a statement that ICICI was a safe bank and that the rumors were false.
Similarly Unitech, one of the country’s biggest real estate developers was brutally mauled by the Bear cartel. It is true that Unitech is leveraged but not to the extent that the bear cartel made it out to be. The result was that on October 24th ,Unitech’s stock fell by over 50% in a single day and has not recovered since. Just this month another company Rolta was mauled in the same way but thanks to timely intervention by the company and positive growth reports, the damage was minimized.

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