Broker's sudden death jangles investors' nerves

INDIAN stock markets have been hit by the ripple effect of the death of a leading stockbroker.

A distinctly weak undercurrent was induced in all of the country's exchanges following the alleged suicide of a stockbroker in Ahmedabad - which, together with Bombay and New Delhi, is home to one of the country's three leading exchanges.

Rajesh Kumar Shah, a member of the Ahmedabad Stock Exchange (ASE) died on February 11.

He left behind debts estimated at more than 100 million rupees (about HK$22.5 million), raising fears of a payment crisis on the ASE.

Prices on the Bombay Stock Exchange (BSE) crashed in the immediately following trading session, the next Monday.

After going through the 4,200-point barrier in the first week of February, they crashed to a low of 3,807.42, although they were marginally better yesterday than earlier in the week.

At least 10 brokers in Ahmedabad and Bombay who had close dealings with Mr Shah will have been thrown into serious financial crisis by his death, according to the Economic Times.

It is understood that he had extended himself far beyond his capacity; and indications of this had been available to the ASE more than two months ago.

A strong rumour that a government investigating agency had initiated inquiries into the operations of certain Bombay-based stockbrokers, with a view to checking their connection with Mr Shah, further dampened the mood.

In addition, late February is also the time of year when the stock markets tend to be somewhat weak, with indifferent trading volumes.

With the Finance Minister scheduled to present the annual budget on February 28, there is usually bull liquidation and profit-booking in the first fortnight of February.

Although business expects an industry-friendly 1994-95 budget from Manmohan Singh, the market is in no mood to take chances.

This year, the situation has been exacerbated by the fiat of the Securities and Exchange Board of India (SEBI) to brokers to reduce their outstanding positions to zero by the end of February.

All forward trading has been suspended until further notice in an effort to control the runaway boom in an overheated market.

The Unit Trust of India, the single largest operator on Indian stock exchanges, has been a big seller in the market, inducing several other local financial institutions to follow suit.

Although foreign financial institutions continue to buy, they have been rather more selective than earlier.

Some of them have also been hampered by the refusal of their custodian banks in India to activate their accounts.

Leading stockbrokers feel that share prices will move in a narrow range over the next few trading sessions, following the substantial fall in business in the specified group.