There has been an unprecedented rise in the value of stocks of IT industry in the past few weeks. No doubt, the IT industry has performed extremely well last year, and is expected to repeat its feat in the current year too. The IT industry, being largely export-oriented, has substantially benefited from the deteriorating rupee-dollar parity. The strong export performance of this sector has sharply come into focus, especially in the face of a sluggish export growth of the country as a whole.

This has resulted in the investor sentiment turning strongly positivetowards the IT industry, lifting software stocks to dizzy heights on the bourses in a very short period of time. However, on the flip side, the scramble for software stocks has provided a perfect cover to some unscrupulous operators for their covert price-rigging operations. The Hyderabad-based Satyam Computer Services Ltd seems to be one such case. A close look at the trading pattern in the Satyam scrip on BSE and NSE in the last few months broadly indicates that the scrip has come into the grip of certain operators since mid-March 1998. Between January 5 and March 20, spanning 11 settlements and 51 trading days on the BSE, the price moved from Rs 173.75 to Rs 227.40, with a cumulative volume of only about 24 lakh shares, that is an average of 47,000 shares a day. A similar trend was exhibited on the NSE, too, where between January 1 and March 17, comprising 11 settlements and 51 trading days, the price rise was more modest from Rs 173.45 to Rs 194.15, with a cumulative turnover of 55.54 lakh shares or anaverage of 1.09 lakh shares per trading day. Thereafter, on both BSE and NSE, the upward march started, with a rapid increase in volume.

On the BSE, between March 23 and April 30, in 26 trading days and six settlements, the scrip clocked a gain of more than 80 per cent from Rs 250.10 to Rs 462.25, with cumulative turnover taking off to 199.70 lakh shares, at an average of 7.68 lakh shares per trading day.

On the NSE, too, the story was not much different. Between March 18 and April 21, spanning 5 settlements and 23 trading days, the price doubled to Rs 419.40, with cumulative and average turnover of 94.27 lakh shares and 4.10 lakh shares respectively. The increase in the share price during this period could be probably justified as a common phenomenon impacting software scrips. But what cannot be justified is the roller-coaster ride that the scrip has witnessed in the subsequent period, which has been signified by a quantum jump in turnover and frenzied activity. On the BSE, between May 4 and June 19involving seven settlements and 33 trading days, the scrip was on a roller-coaster ride, trading between Rs 308.25 and Rs 585.50.

More significantly, the cumulative turnover skyrocketed to 939.66 lakh shares, that is more than three and a half times the paid-up equity of the company! The average turnover per trading day during this period worked out to 28.48 lakh shares, nearly 11 per cent of the paid-up equity of the company. The hectic trading of Satyam scrip has been more pronounced on the NSE, where between April 22 and June 23, in nine settlements and 43 trading days, the scrip fluctuated violently between Rs 259.20 and Rs 612.50.

The cumulative turnover at 1806.19 lakh shares was almost twice that recorded on the BSE, which is nearly seven times the paid-up capital of the company! The average turnover per trading day was also higher at 42 lakh shares.

The dizzy volume has not only put Satyam in league with market king Reliance and speculators' delight ITC, but it has also enabled Satyam toupstage both Reliance and ITC on several occasions on different counts. For instance, between June 1 and June 24, comprising 18 trading days on the BSE, Satyam clocked a higher number of trades than Reliance on six days and ITC on 10 days. In terms of number of shares traded, Satyam beat Reliance on one day while undermining ITC on five occasions. In terms of traded value, Reliance was subjugated on 13 out of 18 trading days, while ITC lost the battle to Satyam on one occasion. The Satyam counter witnessed a cumulative business of Rs 2,340 crore in 18 days, as compared to Rs 1,694 crore by Reliance and Rs 4,394 crore by ITC. The software industry leader, Infosys Technologies, was nowhere in the picture, with a cumulative turnover that was only about 10 per cent of Satyam.

Similarly on the NSE, during the same period, Satyam upstaged Reliance on six occasions and ITC on seven occasions in terms of number of trades conducted, while in terms of number of shares traded, it managed to remain above Reliance onone trading day and ITC on five trading days. In terms of traded value, Satyam, with a cumulative turnover of Rs 3,197 crore decisively knocked out Reliance (Rs 2,212 crore). And, the industry leader, Infosys, was once again relegated to a level where its cumulative turnover was barely 11 per cent of that recorded by Satyam.

Now, who is accumulating Satyam shares? News reports would like us to believe that the hectic buying was largely by foreign institutional investors (FIIs). Satyam hiked the FII/NRI/OCB shareholding limit from 24 per cent to 30 per cent during the second half of 1997. Subsequently, it was reported in November 1997 that FII investments in the company had hit 26 per cent, prompting the Reserve Bank to put the stock on the watch list, where intending FIIs could acquire shares in the company only on obtaining prior RBI permission. The FII/NRI/OCB holding in Satyam is now said to be at or near 30 per cent, which thus rules out the possibility of further large scale accumulation byFIIs.

Given the bright future of the software industry, no FII is also likely to sell its holding in a hurry. In other words, there should not be any heavy buying or selling from the FIIs. Last year, the promoters reportedly held about 59 per cent of Satyam's equity. With nearly 89 per cent of the equity thus taken care of between the promoters and the NRI/OCB/FIIs, the floating stock remains at around 11 per cent amounting to about 29 lakh shares. Given the reported shareholder base of about 46,000, even this floating stock is widely spread. Yet, the pattern of trading on both BSE and NSE indicates that on many occasions, the number of shares traded vastly exceeded this floating stock component, which brings us to the crucial question: who is behind the sudden upsurge in volumes? In this context, the disclosure made at the time of the rights issue of fully convertible debentures (FCDs) in 1995 does have some significance. The letter of offer put the core promoters' stake at a paltry 4.78 per cent! With atotal promoters' holding reported to be 59 per cent and with a core promoters' holding at just 4.78 per cent, there is a possibility of the core promoters afraid of being dispossessed of their company by the `non-core' promoters. Does this fear manifest into hectic buying activity on the bourses? May be.

Perhaps, the operators unconnected to the core promoters may also indulge in warehousing the scrip! But, what's surprising is, the two premier stock exchanges have been oblivious to the developments and have not examined the sudden bout of activity in Satyam counter. History has shown that our regulators have, more often than not, locked the stable after the horse has bolted. Before a crisis develops, it is time the stock exchange authorities and the regulators probe the sudden spurt in the volumes of Satyam Computers not only in the interest of the small investors, but even to justify their existence!

(Arranged by Investar -- The Aarthik News and Research Syndicate)