The rigged-game fallacy

The recent SEBI action against Jane Street has sent shockwaves through India’s trading community. The accusations are serious: allegedly manipulating the Bank Nifty index through coordinated buying and selling strategies, making billions whilst retail traders suffered massive losses. The anger is understandable. When regulators claim that 91 per cent of individual traders lose money in derivatives markets and simultaneously uncover what looks like systematic manipulation by sophisticated foreign operators, it’s natural to feel the game is rigged.

But here’s the thing about market manipulation: it’s real, it happens – and, as we at Value Research have shown for three decades, it’s largely irrelevant to the genuine investor. This isn’t meant to minimise the seriousness of Jane Street’s alleged actions, nor to excuse regulatory failures. Rather, it’s to point out that manipulation thrives in exactly the kind of short-term, speculative trading that sensible investors should avoid anyway.

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Consider what Jane Street is accused of doing. They allegedly bought Bank Nifty stocks in early trading hours to push up the index while simultaneously building short positions in index options. This strategy supposedly worked because they could predict how the index would move later in the day, allowing them to profit from the price movements they had created themselves. It’s a sophisticated version of the old pump-and-dump scheme, enabled by algorithmic trading and massive capital.

Notice something important: this manipulation only works in the very short term. Jane Street’s alleged profits stemmed from predicting and influencing price movements within hours or days, not months or years. Their strategy relied on the rapid-fire derivatives trading that has become increasingly popular among retail investors, precisely the danger zone our Stock Advisor and Fund Advisor services keep warning members about.

SEBI’s own data show that between FY22 and FY25, 91 to 93 per cent of retail derivatives traders lost money. Even after regulatory reforms in October 2024, the loss rate remains 91 per cent. These numbers echo what Value Research’s analytics team sees daily in the behaviour of new investors who wander into options hoping for quick gains.

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So the real question isn’t whether markets are manipulated – sometimes they are. The question is whether manipulation should affect your investment decisions. If you’re buying shares in a well-researched company because you believe in its long-term prospects, does it matter that some algorithm is pushing around index prices for a few hours? If you’re holding a diversified portfolio of quality stocks or low-cost funds for years, should you care about daily price blips driven by high-frequency trading? We think not.

Why? Market manipulation exploits short-term price inefficiencies. Manipulators rely on other traders to react quickly to their artificially created price signals. However, if you aren’t trading on those signals, you aren’t playing the game they’re playing. That’s why, in every edition of Wealth Insight and across VRO, we stress the same fundamentals: buy businesses you understand, hold them for the long term, and ignore the ticker tape’s chatter.

The Jane Street case also highlights another crucial point: the most vulnerable investors are those chasing quick profits in derivatives. They lost Rs 1.05 lakh crore in FY25 alone. They’re playing a game where the odds are stacked against them even without manipulation; add rigging, and the odds worsen.

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But here’s what the manipulators cannot do: they cannot alter the long-term value of good businesses. They cannot make a profitable, well-managed company worthless, nor can they turn a fundamentally weak business into a lasting winner. Manipulation creates noise, not permanent changes in underlying value.

That’s why the best defence isn’t better regulation—though that’s certainly needed—but better investor behaviour. Focus on businesses rather than stock prices. Think in years, not hours. Build a portfolio you can hold through market storms.

The Jane Street scandal will eventually be resolved in court. For investors, the lesson is simpler: stick to the basics, avoid the derivatives casino, and remember that in the long run, fundamental value prevails. The game may sometimes be rigged, but you don’t have to sit at that table.

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