Praveen Chakravarty is a Congressman curious about correlations, causes & consequences. @pravchak
Credit: DH Illustration
On 31 May, there was sudden frenetic activity in India’s stock markets. The value of shares bought and sold on the National Stock Exchange (NSE) doubled from the previous day. Such an enormous spike in shares trading on one day is very rare, even when there may be a big, surprising news or development. For example, on 12 March 2020, when the World Health Organisation, declared the coronavirus outbreak as a global pandemic, stock market activity rose 22% from the previous day, but even then, it did not double. Stock market trading activity last doubled on 16 May, 2014, when election results were declared and Narendra Modi had won with an absolute majority in the Lok Sabha, a first in three decades, which was a huge surprise then.
So, the curious question is -- what was the absolutely surprising news or development on 31 May, 2024, for stock market activity to have doubled? Nothing. Only, that it was the day before the final phase of polling, a detail that was known beforehand. There was no big news to explain the massive increase in stock market trading on 31 May.
Then, who were the people indulging in such intense trading for no apparent reason? While specific investor details are private information and unavailable, the NSE publishes stock market activity by investor category -- retail investors (common people), domestic institutional investors like Indian mutual funds, and foreign investors. Turns out that it was foreign investors who accounted for 58% of all the buying of shares on that day. This was surprising because on every day in the prior week, foreign investors were not buying in such large proportions and were net sellers. It is then intriguing that on 31 May, when there was no big news development, a group of foreign investors suddenly turned bullish on India and decided to indulge in massive buying of shares. This mysterious share-buying activity by a group of foreign investors can only be explained by what happened the next day.
The exit polls were released the next day and, magically, every single exit poll predicted an absolute landslide for the BJP alliance, some with even 400 seats, the first in four decades. But then, how did stock market activity double the day before these exit polls were released when, presumably, only the pollsters and their media organisations were aware of the predictions and those had not been made public yet? Surely, it cannot be a mere coincidence that an extremely rare event like doubling of stock market trading happened exactly one day before multiple exit polls unanimously projected an enormous victory for Modi!
When the stock market reopened on 3 June, after the weekend, it rose to an all-time high, driven by the exit polls’ prediction of a third term for Modi with an untrammeled majority. Evidently, the group of foreign investors who suddenly bought huge amounts of shares on 31 May, saw their value rise enormously. On 4 June, when the actual results were being declared, it became clear that every single exit poll was way off, and Modi was struggling to get even a simple majority. The stock market panicked and crashed. It lost Rs 30 lakh crore in value just on counting day, the highest fall ever in its history. By which time, the foreign investors had sold their shares and made massive profits. The vast majority of retail investors (common people) saw their share value decline, and suffered huge losses.
This is just the simpler side of the story. The other, more technically complex, side to this saga is that there was also enormous profiteering through speculation in the stock markets using share derivatives, through which investors can profit from both the rise and the fall in the stock markets. These derivatives investors gain the most when there is tremendous volatility, which is exactly what the Indian stock markets experienced between exit polls and actual results. Data shows there was huge trading in derivatives, too, between 31 May and 4 June.
Had the exit polls not predicted a massive victory for the BJP, the stock market would not have jumped so high on 3 June, and consequently not fallen so steeply on 4 June. It was the exit polls that induced this desired volatility for derivatives investors. Was this done wittingly or unwittingly, is the Rs 30 lakh crore question.
In sum, it is crystal clear through data that there was suspicious and mysterious stock market activity around exit polls and election results by which a group of foreign investors gained, and millions of Indian small investors lost wealth.
The corollary presumption to these intriguing stock market activities is that a certain group of investors had access to the exit poll predictions prior to them being made public, and profited from this ‘inside (mis)information’. This is a punishable crime under securities laws, and in most countries, this would be seriously investigated with alacrity. Some of the obvious questions that come to mind are:
1.→Who are these foreign investors that pumped in huge sums of money into India’s stock markets on 31 May?
2.→Did they act on material, non-public, inside information of the exit polls to profit from them?
3.→What is their relationship to the exit pollsters, or the media organisations involved?
4.→Whose money or on whose behalf were these investors investing?
5.→How much did these investors profit in just these two days of trading?
On October 9, 2021, the then Chancellor of Austria was forced to resign in a unique scandal. He had rigged opinion polls in his favour, forced the media to show these surveys, and won his election. Indian pollsters may have done even better. From the chronology of events and stock market data, one can easily impute that not only were exit polls weaponised to influence election outcomes but to also profit using the stock markets. India may have witnessed the world’s first “Exit Poll Stock Market Scam”!