The ongoing bull run in the stock market hasn’t brought happy memories for all the investors. This is especially true in the case of those who hastily bought shares of small companies that were suddenly showing signs of super growth. Later, as it always happens, the share prices plummeted at the slightest indication of a market correction and the investors were left with bruised egos, not to mention their hard earned money that disappeared overnight. Such incidents, however, are not happening for the first time. All the previous bull runs saw investors making similar errors in judgment. The Indian retail investor has time and again shown that an out-of-the-blue, trailblazing, gravity defying, yet cheap, stock is just too tempting to stay away from, much to the delight of the manipulators.

Inactive small cap stocks, trading below their par value are an easy target for money launderers. These stocks fall into the ‘Z’ category on BSE and ‘BE’ & ‘BT’ series on the NSE. They go for stocks that are highly illiquid, mostly held by promoters. The next step is to buy the shares from a fund, the owner or equity shareholders, if any.

The price-rigging begins once a bulk of the shares is acquired. The process involves circular trading of the stock, where the money launderers buy and sell the stock to each other. This results in the rise in volumes and prices of stock. The small investor with shallow pockets is attracted to these stocks, since most of them are priced in the region of Rs. 0-50 and were trading below-par value not long time back.

To add fuel to the artificial growth, a string of false corporate announcements is unleashed. These announcements mostly talk about the company’s shortterm plans like going for a GDR/ADR or a capacity expansion. These announcements are enough to tilt the sentiment in favor of the company, at least in the near short-term, which is more than enough for the launderers.

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