Harshad Mehta (a biographical sketch)

Love him, hate him but you can't ignore him.

Name : Harshad Shantilal Mehta (aka Deep Chhaya)

The ultimate rags to riches story...

From the small town Raipur boy who was once rusticated from school to the uncrowned Sultan of Dalal Street!

First broker to become a mega-star of Indian capital markets & fire the greed and imagination of every middle class Indian in the early 1990s.

Born = 29 July'1954 in a Gujarati Jain family of modest means.

Father : Shantilal Mehta

Mother : Rasilaben Mehta

Early childhood spent in Mumbai where his father was a small-time businessman.

Later, the family moved to Raipur in Chattisgarh after doctors advised his father to move to a drier place on account of his indifferent health.

He also studied in S.S. Kalibadi Hr. Sec. School, Raipur,

But Raipur could not hold back Mehta for long and he was back in Mumbai after completing his schooling.

After coming to Mumbai Harshad Mehta joined his 1st job as dispatch clerk in the New India Assurance Company. But his 1st love is always Stock market.

In the early eighties he quit his job and sought a job with stock broker P. Ambalal affiliated to BSE before becoming 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.

Once he was unable to sustain his overbought positions and decided to pay his dues by selling his house with consent of his mother Rasilaben and brother Ashwin.

The next day Harshad went to his brokers and offered the papers of the house as guarantee.

The brokers Shah and Sheth were moved by his gesture and gave him sufficient time to overcome his position.

After he came out of this big struggle for survival he became stronger and his brother quit his job to team with Harshad to start their venture GrowMore Research and Asset Management Company Limited.

While a brokers card at BSE was being auctioned, the company made a bid for the same with financial assistance from Shah and Sheth, who were Harshad's broker mentors.

He rose and survived the bear runs, this earned him the nickname of the Big Bull of the trading floor.

His actions, actual or perceived, decided the course of the movement of the Sensex as well as scrip-specific activities.

Harshad Mehta found that stocks of companies were not rising and falling as per their fundamentals, and he started manipulating one stock named ACC. It was rising , rising and rising only. The price of ACC was bid up to Rs 10,000.

For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company.

He started buying this ACC at mid 1990 and then he suddenly made it public. It was Harshad Mehta’s trademarked style.

Through the second half of 1991, Mehta was the darling of the business media!

But, where was Mehta getting his endless supply of money from? Nobody had a clue.

By then, the driving ambitions of a young man in the faceless crowd had been realised.

On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the scam.

The broker was dipping illegally into the banking system to finance his buying.

“In 1992, when I broke the story about the Rs 600 crore that he had swiped from the State Bank of India, it was his visits to the bank’s headquarters in a flashy Toyota Lexus that was the tip-off. Those days, the Lexus had just been launched in the international market and importing it cost a neat package,” Dalal wrote in one of her columns.

Harshad allegedly exploited the mechanism by using two tools

1) "the ready forward (RF) deal."

2) "the bank receipt (BR)"

In RF deal, crudely put, the bank lends against government securities. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. In this process the borrowing and lending banks knows only broker and may not know the name of the other party.

And Harshad Mehta used this fact very well for his own personal benefit.Harshad Mehta and his cronies used this with great success to channel money from the banking system. He invested that money in stock market.

In a ready forward deal, the borrower, i.e. the seller of securities, gave the buyer of the securities a bank receipt (BR). Having figured this out, Mehtha needed banks, which could issue fake BRs, or BRs not backed by any government securities.

“Two small and little known banks came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee,”

Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case.

This money was used to drive up the prices of stocks in the stock market.

When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehta’s modus operandi.

Once the scam was exposed though, a lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore.

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"I thought I'd be like Pied Pier", he had told a newspaper in 1992,

"I thought I can sell dreams...asset-creation is not a crime"

Harshad's problem has always been his flashiness.

At his peak, he lived almost like a celebrity in a 15,000 sq ft house, which had a swimming pool, beautiful golf patch. He also had a crush for flashy luxurious cars and no wonder he used to have some of the best car of 1990’s in his huge parking.

Larger than life kind of personality can make the worst enemies for you. When he came to know this truth it was too late.

Even before that he was featured in a video newsmagazine feeding peanuts to bears at a Mumbai zoo to symbolize his victory over the bear-cartel in the stock market.

In fact, for weeks after the scam, he was convinced that he would never have been caught but for the bear cartel.

Whole bear cartel joined against Harshad Mehta. The bear cartel exposed the truth behind the constant rise of this big bull.

The amusing paradox is that the even bear cartel was using same “technique” as Harshad Mehta used.

But there was a difference - Bears cartel used the money from overseas banks where as Harshad Mehta used Indian banks for his growth. And this act was “crime” as per Indian law books.

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1997 saw Harshad Mehta making another big comeback attempt.

He was among the first to set up his own website to dispense tips.

He had also built up a network of senior media managers who gave him the publicity and commissioned him as a columnist.

He also had powerful friends.

Some of the largest newspapers in the country, were convinced that a Harshad Mehta column was sure to send circulation figures soaring.

Typically, Harshad did not stop at dispensing tips. He had struck a deal to ramp up the prices of several stocks!

He had managed to build up quite a speculative bubble and was again the focus of investor attention when India's nuclear tests caused a sudden collapse in prices and his bubble burst.

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He used to study fundamentals, he used to buy in big quantity and then he used to make is public.

And demand of that stock used to rise like anything after recommendation of this Big Bull !!

He was a darling of Indian media.He was dream seller.

Harshad Mehta thought different then others.

The basic concept behind his view was very optimistic and somehow it was good for Indian money market too.

He used to explain people that if fundamental of some company is good it should go up and should always goes up.

But excess of everything is bad!

"I still consider it an effort of my creativity. Some people were creative enough to understand the system and make lots of money while others were not. Not that the market did not have intelligent people around. It is just that they realised it too late."

A placard next to a coffee-table in Mehta's office read:

"Don't Get Mad, Get Even."

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In the wee hours of December 31, just before the year 2001 came to a close, Harshad Mehta passed away in a jail in suburban Mumbai.

His death remains a mystery. Some believe that he was murdered ruthlessly by an underworld nexus (spanning several South Asian countries (including Pakistan).

Some people call him a thief and for some he is a one who told, how to play in the stock market.

He actually showed the potential of the Indian Stock Market and took it to new heights which were never imagined then.

Charismatic but recklessly ambitious, Harshad Mehta set out to be a role model for investors.

The recent Hindi movie 'Gafla' is influenced by his story!

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I had the brush with the history when I saw this man from very close when he visited Shimla a few months before his death! While searching for information on him from the net and editing it (which took me around 2 days) I was overwhelmed by

1) the drive behind this man
2) the naked truth of the cartels in operation
3) the vulnerability of the Indian Stock market and Banking system (and the fools paradise we all retail traders live in)!!!