Manu Manek aka Cobra of Stock Market: After the release of Scam 1992, just as many are intrigued by Harshad Mehta, they are equally intrigued by his rival the Cobra or in real life Manu Manek.
In this article, we provide an insight into who he was and some of his famous exploits in the market. Keep Reading to find out!
Who was the real Manu Manek?
From what is known, Manu Manek was born in Kolkata between the late 40s and early 50s. After completing his education he began working as a stockbroker in the stock market. During this period he sat on the sidelines learning the ins and outs of the early Indian markets.
Once he earned enough experience he began putting his knowledge and analysis into action. After making profits Manek became a market operator. An operator in the market is one who manipulates the prices in order to make personal gains.
Soon Manek was playing among the big leagues making him an important figure in the market. This and his dusky appearance earned him the nickname black cobra.
Ratilal Choksey, the founder of K R Choksey Shares and Securities says, “Manek was a legendary personality and a powerful operator who dictated the market. Without his nod, it was impossible to become the director of a company. Apparently, on the day of the election, he would send the name or list of directors to the companies and only those people ever got elected.”
Such was the stronghold of Manek that as per Choksey if a company were to appoint a director they first had to take his permission. Only those were appointed who were approved or selected by Manek.
This was also the case if the company was to pay dividends. He also had a network of brokers who would operate on his command.
His reach also extended to the officials of the exchange who at times would favor him when it came to settling dues. This meant that Manek not only controlled the exchange but also had a good hold on the companies that were listed. This made him the undisputed king of the Bombay stock exchange.
As it still is in India, many attributed the success of Manek to God’s boon given to him to read the markets. Let us have a look at the strategy which made him successful.
How did Manu Manek amass such great Wealth and Control?
Before we jump in it is important to note that the Indian markets we are talking about are in the 70s and 80s.
The markets did not have regulations set by the SEBI which are even near to what we have today. This gave an opportunity to manipulators like Manu Manek and Harshad Mehta to exploit the several loopholes present.
When it comes to trading in the markets there are two main strategies. Namely bearish and bullish.
The majority of the investors are bullish in nature. These investors purchase shares in hopes that the prices will rise. This in turn allows them to make profits through capital gains by selling the shares at a higher price. This is a rather optimistic approach to investing.
On the other hand, bearishness is a rather pessimistic approach. Here investors look for companies that are doing well or are overpriced and make a profit from their fall.
Derivatives weren’t present in the market when Manek was operational. They however used a different means to short stocks.
In the 80s low-cost credit was a rarity. Especially when someone was using the loan to invest in the market lenders would often charge exorbitant rates.
Traders would flock to Manu Manek to avail of this credit facility for which he would charge 20%-30% interest. In exchange he would also get info on the shares the traders are targeting.
Now coming back to the other means to short stocks. Manek now had the information on which shares are being targeted and would eventually rise. If one had a good relationship with his broker they would lend shares to him.
Manek would receive these shares from the broker and in turn sell those shares of the targeted company in the market. This would increase the supply of shares in the market and create selling pressure.
This in turn would reduce the price of the shares. Then Manek would then buy these shares back at a lower price booking a profit.
This allowed Manek to make profits from both ends, lending and shorting. The information he has also made his trading style less of a bet. This strategy gave him the name Cobra.
Manu Manek and the Bear Cartel
Moving the market at a scale that the prices would be severely affected was not possible by one person alone. Manu Manek realized this and formed the bear cartel. These huge numbers would give them access to capital which was enough to move the market.
The members would follow his instructions. Thus Manek was now a force to reckon with. This allowed him to rule the market using fear. This cartel reigned the market i.e. until Harshad Mehta entered.
The other big names are Shankar Sharma, Dinesh Dalmia, Ajay Kayan, Raamdeo Agrawal, and Nimesh Kampani.
Now let us take a look at some of the infamous exploits of the bear cartel.
Manu Manek and the Bear Cartel vs Ambani
Reliance was a company with strong fundamentals but a new entrant into the stock market. Led by Dhirubhai Ambani, Reliance went public in 1977 during Manek’s rule.
In the 80s, unfortunately for Reliance Manek’s sight fell on their shares. But Dhirubhai was not just any other head who would allow his shareholders to suffer the consequences.
Dhirubhai held his investors in high regard and treated them as family members. When he got the news that the cobra had begun the attack on his company he immediately took action. He called upon Anand Jain as a close friend and classmate of his son Mukesh Ambani to lead the charge.
As expected the bear cartel began selling the shares lent to them. But in this case, Anand Jain and other loyalists began buying the shares that the bears sold. This not only countered the bear’s plan but also drove the price to Reliance upwards.
After continuous selling, the bears now found themselves in a pickle. They had sold shares that they didn’t own at a lower rate.
Now when it was time to deliver the price had shot up. This meant that the bears would now have to buy the shares at a higher price to deliver them to Anand Jain and other loyalists.
The standoff with the cartel eventually resulted in the closure of the BSE for a few days. The only thing Manek could now do was pour in more to risk the shares shooting even higher, increasing their losses.
Manu Manek accepted defeat and decided to limit his already huge losses by delivering the shares at a higher price to Anand Jain.
Manu Manek’s Bear Cartel vs Harshad Mehta aka Big Bull
When Harshad Mehta entered the market he spoiled the smooth sailing reign that the cartel held in the markets. They had several standoffs the biggest of which included shares of the company earlier named Indrol.
Similar to what Anand Jain did, Harshad Mehta too kept buying the shares that the bear cartel had shorted. This pushed the cartel into a defensive position.
As a last resort, Manek in an attempt to affect Mehta’s credibility spread rumors that Mehta had suffered losses worth Rs. 1 crore in the market. Mehta countered this by clearing all his dues in advance.
The cartel was astounded at Mehta’s ability to bring in funds. Even though he had won the battle he would go on to lose the war against the bears.
As the money was funneled illegally from banks they just had to wait for news of his scam to break out. Once the scam broke out Mehta’s departure was imminent.
However, this would have had severe consequences on the cartel if it went sideways. Billionaire RK Damani is known to have stated that if Mehta would have been able to hold his position for a week he would end up in the streets.
After the final duel with Harshad Mehta, members of the cartel decided to adopt a different approach to investing. This included focussing on value investing.
Unlike Jhunjhunwala and Damani, Manek had done a good job staying away from all the spotlight. This is one of the reasons why there is very little known about him and his other exploits.
That’s all for this post on Manu Manek, let us know what you think and share in the comments below. Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.