Bribery scandal rattles stocks

The bursting of a bribery scandal by the Central Bureau of Investigation on Wednesday, 24 November 2010, involving officials of some top PSU banks and finance firms rattled the bourses with key benchmark indices -- the BSE Sensex and S&P CNX Nifty hitting 2-1/2 month lows. The market fell for the third straight week after hitting record closing high early this month. Realty, construction, banking and some firms whose names were reportedly involved in the scandal took a heavy drubbing. The market fell in four out of five trading sessions during the week.



The Securities & Exchange Board of India (Sebi) is reportedly examining the possibility of insider trading in shares of at least nine companies. The Sebi has joined the Central Bureau of Investigation (CBI) to probe the possibility of insider trading in shares of these companies, named by the investigator as involved in the loan scandal, reports suggest.

The Central Bureau of Investigation (CBI) has reportedly sent notices to 21 medium-to-large sized Indian companies regarding the ongoing probe into a financial bribery scandal. The cases are limited to individuals and unlikely to create a large fallout, a news agency report said citing an unnamed senior CBI official. The CBI is not currently considering widening its probe into bribery over loans to corporates, the report added.

Finance Minister Pranab Mukherjee on Thursday, 25 November 2010, asked all banks, financial institutions and insurance firms to look into their exposures to firms named by the Central Bureau of Investigation in a loans bribery scandal. A ministry statement quoted Pranab Mukherjee as calling on regulatory and other institutions to further improve safeguards.

Chiefs of some of the top rung public sector banks and financial institutions were arrested by the Central Bureau of Investigation (CBI) on Wednesday, 24 November 2010, for allegedly sanctioning loans in return for bribes. The CBI has arrested the Chief Executive Officer of LIC Housing Finance, Secretary (Investment), LIC based in Mumbai, a General Manager, Bank of India based in Mumbai, a director (Chartered Accountant) of Central Bank of India based in New Delhi, a DGM of Punjab National Bank base in New Delhi. The CBI also arrested Rajesh Sharma, chairman and managing director of Money Matters group, which is at the centre of the scandal.

The CBI said in a statement that it has busted a racket wherein a private financial services company, its CMD and other associates were allegedly bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans. They were also gathering confidential business information from financial institutions, the CBI statement said.

Officers of top management and middle management of various public sector banks and financial institutions viz. Bank of India, Central Bank of India, Punjab National Bank, LIC and LIC Housing Finance were receiving illegal gratifications from the private financial services company who were acting as mediators and facilitators for corporate loans and other facilities from financial institutions, the CBI said. Searches were conducted at various locations in Mumbai, Delhi, Chennai, Jaipur, Kolkata and Jalandhar, which have resulted in seizure of incriminating documents, the CBI said in a statement.

"It is an insignificant amount ... it is individual personal greed, it is not systematic failure," R. Gopalan, secretary financial services, government of India, told a news channel late on Wednesday, 24 November 2010. Junior finance minister Namo Narain Meena on Thursday, 25 November 2010, said that the loans bribery scandal that has led to several arrests is not a widespread scam and will not hit markets or the banking sector.

Life Insurance Corporation of India has reportedly sent to the finance ministry files relating to investments in close to 40 companies along with notings. The files were requisitioned by the government some days before the CBI arrested the secretary in charge of investment at the Corporation Naresh Kumar Chopra, a newspaper report said. The CBI, in its remand application, had alleged that Mr Chopra had received a bribe for passing on insider information with regard to LIC's investment in a host of companies that include, Adani, JP Hydro, JSW Power, DB Realty, Pantaloon. The bureau has alleged that Mr Chopra received 16 lakh paid by Rajesh Sharma, CMD of Money Matters, through his associates.

Stock prices were volatile in the week just gone by as traders rolled over positions in the derivatives segment from the near-month November 2010 series to December 2010 series. The November 2010 futures & options (F&O) contracts expired on Thursday, 25 November 2010.

The BSE Sesnex slumped 448.83 points or 2.29% in the week ended Friday, 26 November 2010, to settle at 19,136.61, its lowest closing level since 9 September 2010. The S&P CNX Nifty fell 138.35 points or 2.34% to 5751.95, its lowest closing level since 9 September 2010 .

The BSE Mid-Cap index tanked 5.76% and the BSE Small-Cap index slumped 7.05%. Both these indices underperformed the Sensex.

Trading for the week began on an upbeat note, with share prices bouncing back from two-month lows on Monday, 22 November 2010, tracking firm global stocks. The strong buying momentum helped the 50-unit S&P CNX Nifty regain the psychological 6,000 mark. The BSE 30-share Sensex surged 372.15 points or 1.9% to 19,957.59.

The key benchmark indices dropped in choppy trade on Tuesday, 23 November 2010, as investors fretted over news of an exchange of fire between North and South Korea, and amid ongoing concern about Ireland's debt problems. Nevertheless, the market staged a strong intraday rebound from a steep slide that pushed the key benchmark indices to two-month lows in afternoon trade. The BSE 30-share Sensex lost 265.75 points or 1.33% at 19,691.84.

The key benchmark indices tumbled in late trade on Wednesday, 24 November 2010 with financial and realty stocks witnessing a sharp sell-off on television reports of a multi-crore housing loan scandal. But, news reports after trading hours suggested it was a case of bribery of bank officials for arranging corporate loans. The BSE 30-share Sensex was down 231.99 points or 1.18% at 19,459.85.

The key benchmark indices hit their lowest level in more than two months on Thursday, 25 November 2010, as the bursting of a bribery scandal by the Central Bureau of Investigation on Wednesday, 24 November 2010, involving officials of some top PSU banks and finance firms hurt sentiment for the second day in a row. The BSE 30-share Sensex was down 141.69 points or 0.73% to 19,318.16.

Weakness persisted on the bourses on Friday, 26 November 2010, as the key benchmark indices extended losses for the fourth day in a row, with a bank loans bribery scandal and weak global stocks weighing on investor sentiment. The BSE Sensex lost 181.55 points or 0.94% to 19136.61.

From the 30 share Sensex pack, 25 stocks fell and rest five rose during the week ended Friday, 26 November 2010.

Index heavyweight Reliance Industries (RIL) fell 3.44%. RIL and NTPC may reportedly settle their five-year-old legal battle over a contract to supply natural gas from RIL's field in the Krishna-Godavari basin to the state-owned power utility. The RIL-NTPC dispute dates back to 2005 when NTPC dragged RIL to the Bombay High Court, complaining that RIL was not honouring a contract to sell 12 million standard cubic metres a day (mmscmd) of gas to its Kawas and Gandhar expansion projects in Gujarat for 17 years at $2.34 per unit. Shares in NTPC fell 4.1%.

Realty and construction stocks slumped as most of the companies named in the loan bribery case are related to infrastructure and real estate. There were concerns that fresh sanctions of loans to realty and construction sector may take a hit after the outbreak of the scam involving sanctioning of loans in return for bribes. Sale of property is largely driven by financed funds.

India's largest realty player by sales DLF lost 6.51%. HDIL (down 22.49%), Indiabulls Real Estate (down 21.85%), Orbit Corporation (down 28.9%), Unitech (down 11.69%), and DB Realty (down 44.11%), declined. Jaiprakash Associates tumbled 12.24%.

Shares of select stocks collapsed after reports the Securities & Exchange Board of India is examining the possibility of insider trading in shares of these companies. Central Bank of India (down 12.97%), Money Matters Financial Services (down 44.22%), LIC Housing Finance (down 27.97%), slumped.

TCS (up 2.69%), Infosys (up 2.5%), Bharti Airtel (up 1.43%), Wipro (up 1.23%) and M&M (up 0.6%), were among the few gainers during the week.

Reliance Communications (down 12.2%), Reliance Infrastructure (down 10.06%), Sterlite Industries (down 8.26%), Bhel (down 6.94%), Hindalco Industries (down 6.23%), Jindal Steel & Power (down 5.42%), Larsen & Toubro (down 5.36%), State Bank of India (down 4.44%) and ICICI Bank (down 2.08%) declined.