Stock Manipulation

What is Stock Manipulation?

Intervention of Sebi in LSIL and PIFL

• LSIndustries Ltd (LSIL) and Pacheli Industrial Finance Ltd. (PIFL) saw unreasonable take offs of stock prices in spite of weak financials.
• LSIL:
  • No revenue but a market cap of ₹5,500 crores.
  • The price skyrocketed over 1,000% in 48 trading days and has now declined by 20.98% in the last month.
• PIFL:
  • A consultancy firm with nominal earnings continues to remain under upper circuit limits since December.

Sebi’s New Way of Surveillance

• Sebi acted before an impending crash, suggesting its regulatory response was proactive.
• External Data Platforms Used
  • In the past, Sebi would largely depend on alerts from its internal surveillance system for identifying potential manipulations.
  • But it started using an independent website called Screener.in to cross check stock price movements against validation data.
• Tools for Advanced Monitoring:
  • Speedier surveillance has been put in place to detect the stocks under surveillance on expiry of price benefits unjustified by fundamentals.

Some Important Commonalities in Investigations

• Both companies have not had significant operating revenues for the past three years.
• The price rise of the stock went against any rational market notion and forced the hand of regulators.
• Companies were already under extra surveillance by the BSE, intended for high risk stocks.

Implications and Takeaways for Investors

• Retail investors must look at fundamentals and not trade on hope and speculation.
• Regulatory authorities are tightening the noose, allowing less and less room for price manipulation.
• The crackdown may extend to other stocks showing such inflated prices, which will hinder speculative trading patterns.