Markets - Machine to transfer the money to Patient from Impatient - A Brief Story of Harshadbhai's Favorite ACC

 Pranam

In this post, I have tried to find out what would have happened to investment of the person who might have invested in ACC at its highest during Harshad Mehta times , but would have been holding the stock till now. I understand most of the people who might have invested @ Rs.10,000 the highest price of ACC in June 1992 would have sold the share as that is what most of us will do in such a chaotic environment .

The following chart is self explanatory - 

Points to be noted - 

1.The Base price of one share of ACC which was Rs.10,000 at its peak of 1992 is now Rs.80,680.6 i.e approximately 8X

2. The CAGR returns including dividends till December 2022 is 7.7% .
3. Rs.10,00,000 invested in June 1992 ( the most stupid decision) is now Rs.92,38,080 i.e 9X 

In many documents  it is clarified that based on the research carried out by Harshadbhai and his team , they started purchasing the shares of ACC from a level of Rs.300/- and effected most of the purchases by Rs.3000/-. The stock thereafter touched Rs.10,000/- but Harshadbhai never recommended any small investor to buy shares of ACC at that level.

In the year 1987 Harshadbhai decided to enter into money market business comprising of Government securities, Units of UTI 1964 Scheme and Public Sector Bonds. Until then this interbank market was closed to outsiders as about 5 members conducted 90% of the business and the existing brokers were patronized by Citi Bank. 

Harshadbhai decided against all odds to try and attempt breaking of a very powerful cartel. After a huge effort of several months, Harshadbhai got a breakthrough from which he rapidly built up a client base of leading banks who were looking for a young loyal broker. To penetrate further and gain marketshare, he stopped going to the trading hall of BSE and became the first broker to set up hotlines between his office at Nariman Point directly into the trading ring of BSE thereby virtually bringing the market to his office. 

Harshadbhai also delegated the equity brokerage and investment business to his family members. The family also took a very major decision to make investments in equity and move away from the broking and portfolio management business which was the root cause of abnormal growth which took place in later years. The stock prices at that time were lying at an abnormally low level and therefore huge quantities were  purchased and these stocks turned into multi baggers.

During the year 1989 to 1991 the banks wanted to trade in money market instruments but there was no liquidity and treating this as an opportunity and using his market making skills Harshadbhai became market-maker and got immense support from all banks and by 1991 almost commanded about 75% volume.  

During the same period, a large number of young and bright Chartered Accountants and MBA’s were recruited to expand the reach for money market business and of research for investing in equities.   A number of offices were added and staff strength crossed about 200.

He had many firsts to his credit for adopting modern methods and technology ahead of others as his business was computerized even when he was just sub-brokers. They built a vibrant organization all of which paid rich dividends to them. 

Bold reforms were introduced just when there was all around gloom and the stock prices were extremely low and attractive which allowed Harshadbhai to buy extremely large quantities with minimum deployment. 

It is also important to note that the secular rise in the BSE index from 2800 prevailing on 29.02.1992 till it reached a level of 4487 by mid-April was entirely attributable to Dr. Manmohan Singh and the dream budget presented by him.

However, Harshadbhai could not participate in that rally, as the Income Tax raid was continuing and his computers and records were under seizure. 

So we can say that “Harshabhai is indeed a product of a historic time”