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Ketan Parekh, a chartered accountant by profession, was once regarded as the kingpin of the Indian stock market during the late 1990s and early 2000s. Known for his aggressive trading strategies and keen ability to manipulate stock prices, Parekh quickly became a prominent name in the financial world. However, his meteoric rise came to an abrupt halt when his fraudulent activities came to light, triggering one of India's most infamous stock market scams: the Ketan Parekh Scam of 2001.
Ketan Parekh's journey into the world of stock market manipulation was significantly influenced by his mentor, Harshad Mehta, the infamous figure behind the 1992 securities scam. Harshad Mehta, often referred to as the "Big Bull," introduced Parekh to the intricacies of market manipulation and speculative trading. Mehta's success in artificially inflating stock prices through his tactics served as a blueprint for Parekh's operations.
While Harshad Mehta focused on the banking sector, Ketan Parekh turned his attention to the technology, media, and telecom (TMT) sectors, which were booming due to the dot-com bubble. Parekh's ability to adapt Mehta's methods and apply them to new industries allowed him to create a similar wave of artificial growth and speculative investments in the stock market.
Ketan Parekh primarily operated through a group of select stocks, which were later coined as K10 Stocks. These were companies whose share prices were artificially inflated through a network of manipulative trading. Parekh leveraged large-scale borrowing from banks and other financial institutions to pump massive sums of money into these stocks, causing their prices to skyrocket.
His modus operandi revolved around two key tactics:
The K10 stocks were a collection of 10 companies in which Ketan Parekh heavily invested. These stocks became the epicenter of his manipulation schemes. The companies were generally from the technology, media, and telecom (TMT) sectors, which were experiencing a boom due to the dot-com bubble at the time.
Here is a list of some of the most prominent K10 Stocks:
Ketan Parekh's strategic investments in these stocks were widely publicized, which lured small investors to follow suit. Many of these companies lacked strong fundamentals, but Parekh's manipulation created an illusion of robust performance and growth.
The Ketan Parekh Scam came to light when the Bank of India discovered a default of ₹120 crore in its Mumbai branch. Parekh had borrowed substantial amounts from banks, primarily using pay orders and other forms of short-term credit. This money was then diverted to the stock market, fueling the bubble.
When the stock prices began to fall due to external factors, Parekh failed to repay the banks, leading to a liquidity crisis. The collapse of Global Trust Bank (GTB) further exposed the scale of his operations, as the bank was heavily involved in funding Parekh's trades.
The Ketan Parekh Scam had devastating consequences:
The scam also led to heightened scrutiny of stock market regulations, resulting in stricter monitoring by the Securities and Exchange Board of India (SEBI). SEBI took swift actions to prevent future manipulations by enhancing transparency and strengthening oversight.
Ketan Parekh was arrested in 2001 and charged with multiple offenses, including stock market manipulation and bank fraud. He was barred from trading in the stock market for 14 years by SEBI. Although he was granted bail, the damage caused by his fraudulent activities left a lasting scar on the Indian financial market.
The Ketan Parekh Scam serves as a cautionary tale about the dangers of unchecked market manipulation. Ketan Parekh's rise and fall remind us of the need for robust regulatory systems and investor vigilance. The saga of the K10 stocks, which were once the talk of the market, now stands as a stark reminder of how greed and manipulation can undermine the financial system. While India's markets have since become more resilient, the lessons from the 2001 Ketan Parekh scandal remain relevant for investors and regulators alike.
By understanding the details of the Ketan Parekh scam and the role of the K10 stocks, investors can make informed decisions and navigate the stock market with caution and confidence.
