Thread by @FinEklavya

The Story of Dhirubhai Ambani: A Lion in the Land of Bulls and Bears

How Dhirubhai Ambani survived a vicious attack by the veteran investor Manu Manek & dethroned him to become the king of the Stock Market.

Decoded!🕵️

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“Think big, think fast, think ahead.”

Quoted by a man who himself stands as the biggest testimony to the relevance of this statement- Dhirajlal Hirachand Ambani a.k.a Dhirubhai Ambani.

A small-town guy, hailing from a financially struggling family who started with zilch but later, went on to become the most renowned business tycoon in the history of India.

His pockets were devoid of money but were brimming with only one thing that makes all the difference- dreams & above all, a passion to turn those dreams into a big fat reality.

From earning only 300 bucks as a clerk to being the richest man of India, Dhirubhai left a legacy that surely has a name to it- Reliance Industries.

He founded Reliance Commercial Corp. in the year 1966 as a polyester firm. In 1973, it was renamed to Reliance Industries Ltd.

It was in 1977 that Reliance finally went public with each share quoting at a face value of Rs 10.

Within a year, the share price reached a high of Rs. 50 which is 5 times since its IPO.

The pace with which RIL’s share prices were growing made it a darling of all retail investors & Dhirubhai, a king or more so, their hero.

Dhirubhai’s rags to riches story began to deeply inspire every Indian middle-class household and thus, followed a cult-like status of Ambani.

On one hand, Dhirubhai was becoming the hero while on the other, a villain was in the making. After all, no story is successful without a villain.

He was no ordinary man but a mini-stock exchange in himself who could make or break any stock on his volition.

The man was Manu Manek, the black cobra of BSE, who ran his own bear cartel in the stock market.

The bread and butter of the cartel was to take massive short positions on the stock thereby creating a selling pressure in the market.

The manoeuvre scares off the retail investors who end up selling their shares at significantly low prices. Thus, the bear cartel used to thrive and make gargantuan gains for themselves at the cost of retail investors.

As RIL shares began to outpace all other stocks in the market, it started troubling Manu Manek who couldn't bear to see an outsider become the leader of the masses right under his nose

All he was looking for was one right moment to assert his dominance & get Ambani to his knees.

In 1982, Reliance announced a rights issue of its partly convertible debentures which the market participants construed as a sign of financial crunch.

With that news, Manu Manek found his moment, an opportunity to hammer Reliance shares.

He goaded his associates to target RIL & was convinced that if they collectively attack Ambani, they would not just make a killing in the market but also affirm their decade-old clout.

Finally, on the relentless insisting of Manek, the cartel decided to short sell RIL stocks.

On March 18, 1982, the short selling began. Within a day, Bears sold around 3,50,000 Reliance shares.

In just a single day, RIL’s stock lost its value by a staggering 7-8%. This was a huge fall back then, given that the market during those days wasn’t very liquid.

The cartel began selling both borrowed stocks and stocks that they neither owned nor borrowed, assuming that when the prices will fall as an outcome of the selling pressure that they create, they will buy the stocks from the market and deliver it to the owners.

In those days, settlements were done every second Friday i.e after a period of 14 days, shares that were sold by the bears should be delivered to the buyers.

This gave them a 14 day period to carry those shares or in cases where they sold more shares than they had, a sufficient period for them to buy the shares at a price lower than the selling price and deliver right on time.

When Dhirubhai saw a precipitous fall in his company's stock price, it was a no-brainer that he wasn't just going to sit on the sidelines.

As expected, he entered the fray and thrashed the bear cartel with his wolf-like acumen.

While the bears were pulling out profits in their own merry way, suddenly the tables began to turn as a gush of buying wave came and swept away Reliance shares from the market. The more the bears sold, the more these people bought.

Who were these people?

Often called as Friends of Reliance, who came from across the borders to fight in this war on behalf of Dhirubhai. It was nobody else but Ambani himself who was playing the game under the guise of these NRI investors.

As this huge wave came in, the share price of Reliance began escalating again. For the first time, it seemed that the bears had been entrapped into their own ploy.

Their entire premise of earning a profit when the price falls was shaken with an incessant rise in the stock price.

The larger part of the problem was that their settlement period was coming to an end & they were supposed to deliver all those shares that they sold to these NRI investors, most of which didn’t even exist in their inventories.

At that point, they had two options- either to buy the shares from the market or roll over their transaction onto the next settlement period.

At no cost, could they have chosen the former and thus, they decided to settle for the latter i.e to roll over their transaction.

The interesting part was that to roll over the delivery of the shares to the next settlement cycle, bears were supposed to pay a certain premium to the buyers.

In those times, this premium was known as 'Undha Badla'.

The power to decide this premium lay with the buyers, who in this case was Dhirubhai Ambani.

Normally, such premium is Rs 1-2 but since this was a matter of war, he charged the bears a premium of Rs 25 per share which tallied up to Rs 5 crores, a colossal amount at the time!

The bears knew that this was it. Their game was over. The entire exchange got into a crisis amidst all this panic and eventually, the exchange was shut down for 3 days.

Ultimately, the bears were left with no other option but to buy the shares from the market which further pushed the prices to an all time high of Rs 201, 20 times its face value.

The bear cartel suffered humongous losses and many of their allies went bankrupt. It was a severe blow to the reputation of the revered Manu Manek and a lesson for the stock market stalwarts to not mess with the likes of Dhirubhai Ambani.

Although Ambani could have let the cartel play their game, he chose not to.

He knew that the stock price fluctuation would be short term but as the champion of retail investors, he decided to save them from the imminent losses at the hands of the cartel.

Dhirubhai Ambani, an outsider, defeated the bear cartel at their own game & established himself as the true king of the stock market.

The bears were playing Ludo unknown to the fact that this time, they were playing with a chess master who thinks not 1, not 2, but 5 moves ahead.