That is the case even on Dalal Street. The profile of the short seller in India’s stock market has changed from the sharp operator functioning from a small office in Mumbai, Kolkata or Ahmedabad to the unknown hedge fund in New York, Singapore, London or Hong Kong with some of the fastest technologies and best-written algos at its disposal. The rules of the game have changed in an era where forceful campaigns on social media platforms and online have made life easier. The more famous ones like Carson Block, a short seller known for bearish bets on Chinese companies, intend to share their ideas and research through a video channel.
The art of short selling has moved from operators identifying targets, accumulating bearish positions and patiently waiting for the trigger to impatient fund managers going for a quick kill. More recently, the traditional form of short selling worked in Yes Bank and some of the Reliance ADA Group stocks; but unlike in the past, no bear cartels were accused of hammering the prices.
The Indian stock market has undergone a huge change in its structure in the past two decades. Gone are the days when a group of operators with deep pockets could drive up and down even some of the country’s blue-chips. With the market getting deeper driven by large professionally-managed institutions, these operators have lost most of their clout. They are still capable of moving illiquid small names but the constant regulatory glare has made it tougher for them.
The funds they have at their disposal are hardly enough to move the needle. In the 1980s, Manu Manek, probably the most renowned and feared bear operator ever on Dalal Street, could short-sell stocks at will because of the lack of market depth and his tight control of funding to traders. Manek, known as Black Cobra, could choke the finances of bulls to steer a trade in his favour.
More lately, it was rumoured that an investor, who stayed away from the stock market for most of the 2004-07 bull run for entrepreneurial pursuits, returned in 2008 with aggressive short selling. Around the same time, another Mumbai-based investor and trader Sharad Shah shot to fame for his rumoured aggressive short selling of various teetering real estate companies. Later, Reliance ADA Group accused a group of traders led by Sharad Shah of unfairly pounding some of its stocks.
These days, it is rare to hear any short seller’s name being associated with a stock. This is because it is tedious to short sell stocks in India. Majority of the bearish bets are taken in the futures and options but the number of stocks available in the segment is 136. Less than a quarter of these stock derivatives is liquid. While Sebi has made it expensive for large traders to take large short positions after the selloff in February and March, activity in the Stock Lending and Borrowing segment is sparse. Traders borrow shares in the SLB segment for a fee to short sell.
If systemic impediments discourage short sellers or research recommending such trades, a lengthy legal battle initiated by the Indiabulls Group in 2012 against Canadian firm Veritas Investment Research, known for its scathing views and acerbic language, may be dissuading them from taking on powerful conglomerates, at least publicly.
An exception has been portfolio manager Amit Mantri, who in 2016 was the first to warn the market about corporate governance issues in the then-favourite Manpasand Beverages. The stock is not traded anymore. On why he has not come out with similar reports, Mantri tweeted in 2018: “That’s not because there weren’t enough candidates but just that the way some big guys in the ecosystem responded, scared us a bit.”
Clearly, there are fewer incentives for short sellers to be in the limelight when being faceless serves the purpose. Wall Street veteran value investor Seth Klarman remarked that short sellers are the policemen of the market. Between being cops and predators, there is room for short sellers to exist.