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The more things change...

The Harshad Mehta story is finally on TV and it's an interesting watch for anyone who is curious about what has changed, what hasn't and what will never change

The more things change...

I've been watching the 'Scam 1992' TV show on Sony Liv for a few days. For those who have any interest in the equity markets or investing, it's a fascinating show. Investors who are old enough to have experienced the 1992 era first hand will find the show even more interesting, especially if they haven't read Debashis Basu and Sucheta Dalal's book 'The Scam', on which it is based. Most of us would not know or would have forgotten the wealth of detail about Harshad Mehta's doings.

When one watches this serial, it's easy to get overwhelmed by how different things were in the equity markets in those days. Everything was manual, mechanical, information was slow and uncertain and the main way of making money seemed to be to manipulate information flows and exploit information gaps.

One interesting aspect of the show is that when you are watching it, some of the things that appear to be blatantly illegal were actually not so at the time. I don't specifically mean during the scam phase of the story, but also the earlier part, set in the 80s, when Harshad Mehta started off on the BSE as a jobber. For example, insider trading was not illegal. In fact, not only was it not illegal, it just wasn't defined in India. In the law and regulations, there was no such thing as insider trading. It was implicit that what we call insider trading now was the way to make money on the markets. If you needed information, obviously you needed to get it from someone who had that information, and who else would have reliable information than insiders? It sounds funny today, but that's the way things were.

However, insider trading in today's sense was not very important. Today, we live in an investing environment where it is understood that fundamental financial facts about a company are of the utmost importance. Till the 80s, things were not like that. For the most part, the stock exchanges were a world unto themselves and what happened to the shares of a company was mostly decided in trading battles between rival cabals of powerful brokers rather than by the actual business of the company whose shares were being traded.

In fact, talking to a few young people over the last few days, I have come away with a sense of disquiet about the impression being carried away by those who know nothing about the modern world of equity investing in India, especially if you access equity investing through equity mutual funds. I found that those who have no idea about what things are like nowadays are carrying away the impression that the basics of equity trading, of why and how prices move and how money can be made is still the same. They understand that we have computers and networks and flatscreens now instead of people yelling at each other on crowded trading floors. However, they come away with the impression that what people actually do is still the same.

Nothing could be further from the truth. Maybe. Now that I have declared that things are completely different, I'm not so sure. The technology has moved forward a century, the rules and regulations are immeasurably stricter, transparency is up by many orders of magnitude. All this has changed behaviour a great deal. However, the unfortunate part is that motivations are mostly the same. A lot of people still think that the purpose of the stock market, as far as they are concerned, is that it's a place to get rich quickly. And the way to get rich quickly must be to get to know about some secret trick that must be known to those who have already made money.

This part has not changed, and looks like it will not change for a long time, regardless of how Harshad mehta's story ended.