Manipulation in the Indian Stock Market: Grounds for Suspicion and Instances of Organized Trading

Much has been discussed and theorized about manipulative practices in the Indian Stock Market. While the market is regulated by the Securities and Exchange Board of India (SEBI) to ensure fairness and transparency, some practitioners and traders have raised concerns about organized manipulation. In this article, we explore some grounds for suspicion and instances of organized trading in the Indian stock market.

Grounds for Suspicion: Delay Tactics and Organized Trading

Often, operators in the stock market exhibit specific behaviors that raise suspicion. For instance, during a period of upward movement, if there is no resistance, a bullish operator can potentially move the market up. However, in the Indian stock market, operators are observed to delay the move for a day or two. This delay is puzzling, especially when one wonders why they would not push the market upward if they have the power to do so. Some observers believe that this delay is part of a well-coordinated strategy where multiple operators are involved in organized and well-regulated activities.

Manipulative Trading Patterns: Gap Ups and Downs

A second significant point of suspicion is the frequent gap ups and downs observed in the Indian stock market. While occasional gaps are not necessarily indicative of manipulation, continuous daily gaps can be a red flag for traders. Moreover, the fact that the trading volume is usually hidden until the day is closed stifles the ability of intraday traders to make informed trading decisions based on full data. This type of behavior can be extremely detrimental to traders who rely on volume and liquidity for their trades.

Market Timing: A Key Indicator of Manipulation

The Indian stock market is often described as being heavily time actioned rather than price actioned. This means that market movements are based more on specific times of the day rather than the prices themselves. For example, foreign institutional investors (FIIs) sell at 3 PM on every day, leading traders to expect the 3 PM candle to determine the end of the day's trading. This correlation between selling activity and market timing is uncommon and can be a sign of manipulation. Other markets may not follow such a rigid pattern, making the Indian market stand out for its peculiar trading behavior.

Market Manipulation in Larger Companies

For larger companies, such as those included in the Nifty and BankNifty indices (e.g., Reliance, HDFC, Bajaj twins, and ICICI Banks), there is a pattern of manipulation based on intra-index movement. These companies are heavily weighted in the indices, and their performance can significantly impact the overall index. Observers have noticed that while these companies may not be trading near their 52-week highs or lows, they are moved strategically to either push up or pull down the indices. This strategy involves selectively moving selected stocks within the index, such as pulling up Reliance and Bajaj twins to push the Nifty up, or dragging down the HDFC twins to pull it down. The ICICI Bank is often kept in a balanced position to stabilize the overall index.

Future and Option Trading Strategies

The selective manipulation of these key stocks not only impacts the spot market but also benefits from future and option trading strategies. When the market is in a sideways trend, big institutions buy options to hedge against downward movements and sell options to benefit from upward movements. This strategy allows them to profit from the intra-index movements without directly participating in the spot market, thereby obfuscating their influence. Thus, the manipulation of these stocks serves a dual purpose: it creates opportunities for profits through futures and options trading, and it masks the true extent of the influence exerted by these institutions.

In conclusion, while the Indian stock market is formally regulated, the complex and strategic behaviors observed among operators raise valid concerns about manipulation. These behaviors, including delay tactics, frequent gaps, time-based market movements, and selective intra-index movements, contribute to a perception of organized manipulation. Traders and investors must be aware of these patterns and take appropriate measures to protect themselves from potential manipulation and fraud in the market.

Keyword Tags: Indian stock market manipulation, securities regulation, organized trading, market manipulation, fraudulent trading