What is Stock Manipulation?
Stock manipulation” refers to the act of intentionally influencing the price of a stock by deceptive means, such as spreading false information, making large, coordinated trades, or using other tactics to artificially inflate or deflate the price to gain personal profit, which is considered illegal.
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.
