The Indian Connection

The Indian Connection

There’s a reason why Reliance is considered the king of Indian stock markets and has the highest weightage in the Sensex. Even in the recent market crash, Reliance did not fall as steeply as other companies and its real decline started only after it was firmly established that the worldwide recession was here to stay and the oil bubble burst, bringing international crude prices crashing down to earth.
In 1982, Reliance Industries came up against a rights issue regarding partly convertible debentures. It was rumoured that the company was making all efforts to ensure that their stock prices did not slide an inch. Sensing an opportunity, a bear cartel which was a group of stock brokers from Calcutta started to short sell the shares of Reliance. To counter this, a group of stock brokers till recently referred to as “Friends of Reliance “Started to buy the short sold shares of Reliance Industries on the Bombay Stock Exchange.
The Bear Cartel was acting on the belief that the bulls would be short of cash to complete the transactions and would be ready for settlement under the “Badla” trading system prevalent in Bombay Stock Exchange during those days. The bulls kept on buying and a price of Rs.152 per share was maintained till the day of settlement .On the day of settlement, the Bear Cartel was taken aback when the Bulls demanded a physical delivery of shares. To complete the transaction, the much needed cash was provided to the stock brokers who had bought shares of Reliance, by none other than Dhirubhai Ambani.In the case of non-settlement, the Bulls demanded an “Unbadla” (a penalty sum) of Rs.35 per share .With this, the demand increased and the shares of Reliance shot above 180 rupees in minutes. The settlement caused an enormous uproar in the market and Dhinubahi Ambani was crowned the unquestioned king of the stock markets. He proved to his detractors just how dangerous it was to play with Reliance.
To find a solution to this situation, the Bombay Stock Exchange was closed for three business days, something which has not happened even of national emergencies like the recent Mumbai terror attacks