By Ruma Dubey
Reuters has published a story today – there are some groups on Whatsapp, which have given out accurate earnings forecasts, hours or sometimes couple of days before they were to be announced. This has raised a lot of pertinent questions about insider trading. First things first, look at what Reuters found on this Whatsapp group – Market Chatter, also known as Heard on the Street (HOS)
1: Three days before Dr.Reddy’s was to report its earnings for Q2FY18, where most analysts had estimated a profit, this private Whatsapp group stated that it would post a loss of around Rs.50 crore. The person who posted this was Nishant Vass, an auto analyst at ICICI Securities. In actuality, Dr.Reddy’s did post a loss and this was at Rs.59 crore.
2: Another message on HDFC Bank - “Hearing Hdfc Bank PAT @ 3900 crs & 1.25 GNPA vs 1.04. Consensus estimate is 3950 crs. Our estimate is 3973 crs so 3900 is not a good number. Numbers on Monday.”
In reality – it posted a net profit of Rs.3894 crore and Gross NPA was at 1.24%.
This same trend of estimated numbers on this Whatsapp group being so close to the actual numbers was spotted by Reuters in 10 other instances. You can have a look at the entire list here: http://in.reuters.com/article/india-whatsapp/factbox-how-corporate-numbers-on-indian-whatsapp-groups-compared-with-actual-results-idINKBN1DG0J9
So this naturally brings to mind the pertinent question – were these instances of insider trading? Or were these all very intelligent and lucky estimations, where some went off the mark but many worked well? There is no trace of where the messages originated from nor was Reuters able to establish that these members of the group had benefitted due to these messages.
SEBI did tighten the screws on Insider Trading norms in 2015 and things are much more ‘tighter’ today than before. Yet, the truth is that there is a very thin line which divides insider trading and trading on knowledge. You never know when this line is breached and you get on to the other side. But at the same time not every opportunistic behavior can be termed as insider trading. And as one can see, it is very difficult as such to discern what exactly can be called as insider trading, which is why the laws on insider trading also, world over are not as vigilant as they should be. How does one know what info is passed on through the phone or when meeting over a cup of coffee? Investigations can happen only when it comes to light that insider trading has happened. If that itself does not get detected, how can one track this down?
Insider trading, despite all the prohibitions, is undetectable most of the times. Yet, new checks are put in place time and again, hoping to cover up the loophole. But every time a hole is covered, it opens up some more new holes in its wake.
Yes, the fact remains that despite all these measures, detecting insider trading is extremely tough and even tougher to bring the guilty to books. Remember, detecting insider trading is not about connecting the dots by going from one dot to the other but by starting at both dots and working towards the middle. In this era of news, it apparently looks like very news, even that which seems real, is also planted.