The Market Operator — Myth or Reality

Let me narrate a story that I first read some twelve years back and found doing the rounds recently on the WhatsApp groups:

Once upon a time in a village a man named Ishwar came from nowhere and announced that he was interested in buying monkeys for Rs 100 each. The villagers seeing that there were many monkeys roaming around freely went out and started catching them. Over time, Ishwar bought thousands of monkeys at Rs 100 and as supply started to diminish and villagers their effort not worth the price he announced that now he would buy monkeys at 200 rupees.

The villagers started with renewed efforts and started catching moneys again. Soon the supply diminished even further and people started going back to their farms and other professions. The offer rate increased to Rs 250 and the supply of monkeys became so scarce that it was an effort to even see a monkey let alone catch it.

“Now, I would buy monkeys at Rs 500 each”, announced Ishwar to villagers, “However,since I have to go to the city for 2–3 days on some business I would do so on my return. Meanwhile, my assistant would handle my office and warehouse”

When Ishwar had gone to the city, the assistant told the villagers, “Look at all these monkeys in the big cage that Ishwar has collected. I will sell them to you for Rs 350 each and when he comes back you can sell it to him for Rs 500”

The villagers saw an opportunity to earn a fortune without any effort by simply doing an arbitrage over time, “Buy now sell a while later”, they exclaimed and squeezed out all their savings and bought all the monkeys from the assistant to be sold to Ishwar when he returns from the city.

Thereafter they never saw Ishwar or his assistant, only monkeys and monkeys everywhere!

That’s (Indian) Stock Markets for you!!

In my multi decade experience in the Indian Capital Markets I have often come across people saying, “they are jacking up the prices to fool the public and sell the shares to them (public) at higher prices” or someone say that the operator will not let the market fall. In saying so it is implied that the equity markets are being run by a single operator or by a cartel which controls the market.

When we talk about this world some of us would say that it is being run God sitting in heaven while others would say that there is nobody sitting out there in heaven but God is in all of us and our collective actions determine how the world is and what happens here. The wild gyrations in the markets, they would say, occur because of leveraged positions undertaken by retail investors and HNI.

So whether the markets are driven by a behemoth having enormous amount of finances and clout or by a cartel operating the markets sitting somewhere in Mumbai, Singapore or USA or are they a manifestation of collective action of all the participants — right from Retail Investor & HNI to Mutual Funds, FII & DII etc, we don’t know. Ishwar (God) only knows.