On 13 January, the Securities and Exchange Board of India, India’s capital market regulator, found Hemant Ghai, an anchor and journalist with CNBC-Awaaz, and two family members, guilty of fraudulent trades based on advance information. A SEBI order barred Hemant from dealing in securities, giving investment advice or sell-and-buy recommendations. Hemant anchored a show called Stock 20-20 which aired on weekdays from 7.20 am, before markets opened. The SEBI found that Hemant, his wife Jaya Ghai and his mother Shyam Mohini Ghai indulged in a large number of buy-today-sell-tomorrow trades—commonly called BTST trades—in which the Ghais purchased shares a day before they were given buy recommendations on the following day’s show. When the share price rose, the scrips would be sold for a profit. These trades were executed through MAS consultancies, a financial-services company. The SEBI’s investigation found that the Ghai’s profits from these trades amounted to Rs 2.95 crore. As of yet, no penal action has been taken by the police against Hemant or MAS consultancies. Hemant Ghai has been fired by the Network18 group, the parent company of CNBC-Awaaz.
The SEBI’s investigation focused on the trading patterns of Jaya and Shyam Mohini between 1 January 2019 and 31 May 2020 and found that the two executed a large number of BTST trades in synchronisation with the recommendations made by Hemant during his Hindi-language morning show. The SEBI’s order notes that shares were purchased the previous day through the trading accounts of Jaya and Shyam Mohini and sold the next day immediately after Hemant recommended purchase or sale of the same shares on his show. The trades were executed through MAS Consultancies, a unit of the Motilal Oswal group, based in the town of Mehsana in Gujarat. The SEBI order states, “Based on call records, it is observed that Mr. Hemant Ghai was in regular contact with Mr. Parth Anilkumar Raval over the course of the relevant period. Mr. Hemant Ghai was also in communication with Mr. Bhavesh Kumar Patel … on some occasions.” Raval is the equity research head of MAS while Patel is part of the management team. Raval did not respond to multiple messages and phone calls. Patel answered his phone, and when I asked him about MAS’s role, he replied, “there is no issue,” before hanging up. SEBI did not take any action against MAS consultancies in its order, though it is not clear why. Madhabi Puri Buch, the wholetime board member of the SEBI who passed the order, did not respond to an email asking about the lack of action against MAS consultancies.
“The anchor would take a position [in shares] before giving a recommendation. As soon the recommendation comes out general investors who follow the anchor would buy those shares in bulk quantities which caused the price to go up. At that point he would sell the share,” the chairman and managing director of a Delhi-based brokerage who wished to remain anonymous, told me. “This is a practice called front trading, where you buy for yourself, before you recommend, and it is illegal as per SEBI rules because you are taking advantage of the system.”
In its order, the SEBI has outlined how the BTST trades worked. “Mr. Hemant Ghai knows that a buy recommendation in some scrips will be given on the show co-hosted by him, before the market opens in the morning.” (Scrips is another term for shares.) The order continued, “There is a reasonable expectation that as soon as the market opens, there will be a significant increase in the price of a scrip on previous close. There is a reasonable expectation that there will be a significant increase in the volume traded during the recommendation day. If on the previous day he knows which scrips are going to be given ‘buy recommendations’ then he knows that buying those scrips on the previous day of recommendation and selling them on the recommendation day can be profitable.” The regulator noticed at least ninety BTST trades synchronised with scrip recommendations by Hemant worth Rs 100 crore over the time period of the investigation.
For instance, on 8 January 2020, Jaya Ghai purchased 52,000 shares of Aptech Limited—an education company—at Rs 159.15 a piece for a total value of Rs 82.76 lakh. The next day, Hemant gave a “buy” recommendation for the scrip, following which the shares were sold between 9.15 am and 9.22 am for Rs 183.19 per share. The profit from the deal was Rs 12.5 lakhs. Similarly, on 19 February, 2020 orders were executed from the trading account of Shyam Mohini Ghai to purchase 2 lakh shares of JK Paper Limited—a Chennai-based paper manufacturer—at Rs 125.73 apiece and sold the next day at Rs 131.79 per share, at a margin of Rs 12.12 lakh.