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Infrastructure Finance Projects: Major Sources of Funding
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Home Country Bias
The activities of most investors have historically been limited to their home country. This is largely because earlier, there were rules which made the transfer of capital between countries an arduous process. Not only was the process complex, but it also took a lot of time and was riddled with transaction costs. This is the […]
The Phenomenon of House Poverty
Homeownership has been at the center of every American dream for the past few decades. The conventional belief is that buying a home always turns out to be a good investment in the long run. This is the reason why owning a home is considered to be one of the biggest and the most important […]
Almost everybody knows that Whatsapp messages are often used to spread false information. A lot of times this information is related to politics. During election campaigns, politicians run concerted smear campaigns against their opponents using messaging services like Whatsapp. It is a known fact that in many terrorist attacks, Whatsapp has been used by the perpetrators.
However, the peculiar case of Infibeam Technologies in India has shown how dangerous Whatsapp messages can be. A new form of economic terrorism using encrypted messaging services has been unearthed. The problem is that it is not very easy to track this new technology. As a result, the subpoenas being issued by the government become worthless.
In this article, we will have a closer look at the case of Infibeam Avenues.
Infibeam Avenues in the first Indian e-commerce company to be listed on the stock exchanges. This company had raised Rs 450 crores via an IPO in 2016. At that time, the company was valued close to 2000 crores. However, since the IPO, this stock has been extremely bullish.
The stock has gained over 437%, and the company was now valued close to 11,000 crores. Infibeam Avenues was considered to be a high growth stock. This is not the first time that Infibeam has seen a mega fall.
The stock has been down by more than 40% on a single day on three occasions prior to this. This is the reason that this stock was being widely used by speculators in the F&O segment. This is also the reason that many skeptics believe that stocks like Infibeam which have very high volatility should not be included in the derivatives market.
The shares of Infibeam Avenues lost 73% of their value on one single day. This is because the share was being held in huge quantities by derivatives traders as well as arbitrage funds. This made the stock inherently volatile. Most of the positions being taken in this stock had short-term intent.
As a result, when the selling started, it was impossible to contain the damage. As soon as the stock fell a few percentage points, the derivatives traders were negatively affected. This is because derivatives traders place leveraged bets.
As a result, a 1% loss gets magnified to a 10% loss. Hence, when the stock of Infibeam fell 6% or so, this triggered massive margin calls.
The derivatives traders did not have the cash required to fulfill these calls. Hence, they were forced to cut their positions and sell. Since so many derivative traders sold their stocks at one go, the market tanked almost immediately. This is when retail investors and arbitrage funds also started selling.
The end result was that the stock prices plummeted into a bottomless pit. There was mayhem in the market. About two-thirds of the market capitalization of the entire firm was lost in a single day.
Preliminary investigations have revealed that the initial crash was triggered by the circulation of a Whatsapp message that was allegedly attributed to Equirus capital. The brokerage firm has denied any links with the message. It turns out that somebody had intentionally sent out a fake message to malign the image of both Infibeam as well as Equirus capital.
The contents of the message alleged that Infibeam had been indulging in some fraudulent behavior. The message alleged that the company had been cooking up its books by using questionable accounting policies. The message also alleged that the company had been embezzling investor cash. This was being done by giving interest-free loans to a subsidiary company that did not have any assets to pay back the loan in the event of default. The executives at Infibeam did agree that loans were being given out to group companies. However, they claimed that these loans have been short-term and have always been repaid. Furthermore, they are very confident that there are no irregularities in the accounting for these loans.
Lastly, the message also claimed that one of the co-founders of the firm had been classified as non-promoter by the firm recently. It turns out that this information was completely false. The list of promoters of the firm has remained unchanged since its inception.
Hence, the message being circulated was clearly spreading misinformation. However, it was still able to bring a company down to its knees.
The aftermath of this tragedy is that the firm has lost three-fourths of its net-worth overnight. The executives of the firm have now complained to the IT minister of India stating that the Whatsapp message was the root cause which triggered the crisis. The executives have stated that retail investors have lost thousands of crores overnight due to the mischief being played by some operators.
This crisis cannot simply be ignored. It is the second largest fall in the value of any stock in the history of Indian stock markets. The only company which lost more money in a single day was Satyam which is today known as being one of the biggest scams in the world.
Whatsapp is still at a relatively nascent stage. This case presents a challenge to them as well. It needs to be seen how governments all over the world will stop the spread of these fake messages which are clearly capable of bringing down huge companies.
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