Manu Manek: Aka Cobra of the Stock Market

Many people were intrigued by Harshad Mehta after the release of Scam in 1992.

They were then equally intrigued by his rival.

His rival was none other than the cobra of the stock market, or in real life, Manu Manek.

Who is Manu Manek?

• Manu Manek was born in Kolkata between the late 40s and early 50s.
• Once he completed his education, he started working as a stock broker in the stock market.
• During these days, he was learning the ins and outs of the early Indian markets.
• After he had gained enough experience, he started putting his knowledge into action.
• After he made good profits, he became a market operator.
• An operator in the market is none other than the one who manipulates the prices so as to make personal gains.
• After this, he started playing in the big leagues and made an important impact on the market.
• Due to this as well as his dusky appearance, he has earned his nickname, and that is “Black Cobra.”

Influence of Manu Manek

• According to Ratilal Choksey, the founder of K R Choksey Shares and Securities, “Manek was a legendary personality as well as a powerful operator who completely dictated the market. Without his nod, nobody could be appointed as a director of a company.”
• Also, he would send a list of the directors to the companies and only those would be selected on the day of election. “
• The same was the case when the companies planned to pay the dividends.
• He even had control over the exchange officials, who would frequently favour him when it came to settling the dues.
• In short, he not only controlled the exchange but also had a good hold on the companies that were listed on the exchange.
• This even made him the undisputed king of the Bombay Stock Exchange.

How did Manu Manek own such great wealth and control?

• The Manu Manek time was the market time during the 1970s and 1980s.
• During that time, the market did not have such strict regulations set by SEBI and, due to this, manipulators like Harshad Mehta and Manu Manek could spoil the market.
• Basically, when we are trading in the market, there are two strategies, such as:

• The majority of the investors in the market are of a bullish nature.
• The bullish market is the one where investors will purchase the shares with the hope that the price will rise.
• They can then have profits through capital gains by eventually selling their shares at a high price.
• A bullish market is an optimistic approach to investing.
• The other strategy is the bearish strategy, which is nothing but a pessimistic approach.
• In a bearish market, investors will look for companies that are doing well and are also overpriced.
• Through this, they will make a profit from their fall.
• When Manek was operating, derivatives were not present, and so investors had a different means of shorting the stocks.
• During the 1980s, low-cost credit was very rare, especially when someone was using a loan to invest in the stock market.
• Many a time, traders would run to Manu so as to avail the facility of credit where he would charge 20%–30% interest.
• In this exchange, he would also get information about the shares the traders were targeting.

How did Manu Manek short stocks?

• After lending the loans and gaining information from the traders about the stocks that they were targeting, he would ask his brokers, with whom he had good relations, to lend them shares.
• Once Manek received those shares, he would then sell those shares of the targeted company on the market.
• This will in turn increase the supply of shares in the market, creating selling pressure.
• This will reduce the price of the shares.
• Manek will then buy these shares at a lower price and book his profit.
• This helped Manek to make profits from both ends, which is:

This strategy eventually gave him the name Cobra.

Manu Manek and the Bear Cartel

• It was impossible for one person to move the market.
• Manu Manek realised this and then formed a bear cartel.
• These huge numbers would provide him access to the capital that was darn enough to move the market.
• Here, in the cartel, the members would follow his instructions.
• With this, he ruled the market with fear.
• This cartel that he formed ruled the market till Harshad Mehta entered.
• His bear cartel included many well-known names who are now great bulls, including billionaires such as Radha Kishan Damani and the late Rakesh Jhunjhunwala.

Manu Manek and the Bear Cartel vs. Ambani

• Many famous industrialists, such as Tata’s as well as Birla’s, feared Manu.
• On the other hand, Reliance was under Dhirubhai Ambani and he went public in 1977.
• The company was a successful company with strong fundamentals.
• Reliance was the largest private company in the early 80s, and Dhirubhai used to make the decisions that were best for his stakeholders.
• His mindset was such that if he had good investors now, it would be easier to get more during expansion.
• Manu had an eye on this company and eventually started short selling the shares of the company.
• Due to this, the shares of the company did go down.
• Instead of approaching Manu, he asked his lieutenant Anand Jain (a classmate of Mukesh Ambani’s) to fight on behalf of Reliance’s bear cartel attack.
• Hence, Anand and his associates bought the stocks that Manu sold so as to maintain the price.
• On the one hand, Manu and his cartel continued shorting the stocks, and Anand continued to buy them.
• Here, Manu was in a problem because he used to borrow these shares and then sell them with the plan to buy them back once the price went down.
• In this case, Anand bought so many stocks that there was no supply in the market and eventually prices shot up, which is where Manu and his cartels booked losses.
• Hence, Manu went for settlement and lost the war.

Manu Manek and his Bear Cartel vs. Harshad Mehta, aka Big Bull

• When Harshad Mehta entered the market, he kept buying the shares that the bear cartel had shorted.
• This put the cartel in a defensive position.
• The last resort that Manu had was to spread rumors regarding the credibility of Mehta that he had suffered losses in the market worth Rs. 1 crore.
• Mehta countered his rumors by clearing his dues in advance.
• Even though Harshad won the battle, he would go on to lose the war against the bears.
• Harshad funnelled the money illegally from the banks in the market and all had to just wait for the scam to break out.
• After the scam broke out, the departure of Harshad was imminent.

Conclusion

After the Harshad Mehta scam broke out in 1992, Manu and his cartels shifted their approach to investing and shifted to value investing.

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