M and B Switchgear, with ‘below average’ fundamentals, closed at a premium of 71% after falling 34% from its listing price on 20th October. Five firms controlled by a common director seem to have made a consolidated profit of Rs8.41 crore from the opening day's trading alone

Yesterday (Is IPO price manipulation back? Two recent issues have witnessed extreme gains & losses ), we had reported on how newly-listed company M and B Switchgears, had closed at a premium of 71% (after falling 34% from its listing price during the course of the day). Moneylife has highlighted cases of IPO (initial public offering) manipulation a number of times in the past—and the article on 20th October had analysed three IPOs, to examine whether the players are back at their game again.

Now that really seems to be the case.

After going through the bulk deals available on the website of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), we unearthed some startling facts. Three firms —A Jain and Company Pvt Ltd, Prabudh Securities Pvt Ltd and Satvik Securities Pvt Ltd, traded 1 lakh shares (of M and B Switchgear) each on the BSE and another two firms—Eshan Financial Services Pvt Ltd and Vimal Finstock Pvt Ltd traded 1 lakh shares each of the same company on the NSE.

This may seem like no big deal to some. However, all of the above firms entered within a price band of Rs128-Rs130—the intraday low for M and B Switchgear on the BSE was Rs118 on 20th October. Not only did all these entities enter at the same price, they shockingly exited within a price band of Rs296-Rs298.

And here’s the clincher. The director of all the five firms is the same person—Anoop Jain. All the mentioned companies are registered in Delhi and made a consolidated profit of Rs8.41 crore from this IPO deal on 20th October. And of course, all this is happening right under the nose of the market regulator and the stock exchange.

Why is this case suspicious? First, why would anyone sink Rs6.50 crore into an IPO, which by nature is a volatile offering? And more important, M and B Switchgear’s IPO was rated with ‘Grade 2’, indicating ‘Below Average’ fundamentals. On 19th October, Taksheel Solutions’ IPO had tanked from Rs150 to Rs55 after listing. Seeing the volatility and risk in the IPO market only a brave—or very foolish—person or entity would have invested in these offerings, unless they had some prior information that the share price would shoot up.

Further research by Moneylife showed that stockbroker A Jain and Company has been charged by market regulator SEBI (the Securities and Exchange Board of India) for committing irregularities in respect of contract notes, not maintaining segregation between client funds and own funds, dealt with brokers of other exchanges without SEBI registration as a sub-broker, did not report off-the-floor transactions to the exchange and defaulted in maintenance of stock register. However, no regulatory action has been taken so far. A Jain and Company had been suspended in 2003—for just 6 months—by the market regulator.

Moneylife has reported many times in the past that SEBI has made a mockery with its consent orders. We have often seen that offences—that required strict corrective action—were let off with a slap on the wrist. The regulator has been somnolent throughout these price-riggings in the past—and sadly, it has not yet woken up to the reality if this case is any indication.