Before we get to today's story, a quick recap on all the things we covered this week. On Monday we spoke about the man who almost became Air India CEO, next we discussed how women affect the economy. On Wednesday we talked about the changing world order, then we discussed YouTube's impact on India's GDP and finally we saw why Nickel prices shot up
And with that out of the way, let's get to today's story shall we?
Last week, Salasar Techno Engineering was trending on social media and people began accusing the company of running a pump and dump scheme. And in this story, we see what the controversy is all about and maybe share a thing or two about the dark underbelly of the PR industry
The Story
Let’s start with a story.
Imagine you set up a company. You run it well. Quite legitimately, if I may say so. And you do this for many years.
Then, you sell some of the company’s stock to the general public in an IPO. You price the IPO attractively and people clamour to invest. You make money.
But a short while later, you realise the stock isn’t doing all that well. And you don’t like what’s happening here because your wealth is tied to your stock price. So you reach out to the media and put out some press release that goes, “ABC company could bag a new order”, “analysts recommend keeping an eye out on ABC stock”. You’re hoping this sort of positive news will affect public perception.
In anticipation, you start buying some of your stock, now that it’s available at a discount. Your buying frenzy automatically pushes the share price higher. The unsuspecting public notices this anomaly and they scratch their heads. They’re tempted to jump in on the bandwagon but they’re not sure yet.
Then, their favourite Twitter influencer drops a nice review. They don’t explicitly recommend it. In fact, they may even say #NotARecommendation. But you know it’s a subtle way of nudging their followers to check out “ABC” stock.
And slowly but surely, people start buying into the hype. This could be a potential multibagger, they whisper. The stock price keeps rising and you (the promoter) sense an opportunity. You dump some of your holdings in a bid to capitalize on this massive buying spree and voila, all of a sudden, you’ve made yourself a nice little sum. And the gullible investors? Well, they are left holding the bag.
Nice!
But this won’t work if you’re someone who wants to make quick money. You obviously won’t have the patience or time to go through all this hassle. So you decide to don another hat — you call yourself an “operator”. You simply befriend the founder of a small company that’s already public. And you sweet-talk your way into making them believe how you can “improve” their share price. You plant the stories in the media, you get your cronies to buy the stock, you pump the price and then you sell it all when it’s nice and high.
In layman’s terms, you’ve just run a very popular scheme dubbed “pump and dump”. It’s not the most legal way to make money in the stock market, but that doesn’t stop people from trying.
So here we are in 2022. And pump and dump schemes are still rampant.
With that introduction out of the way, let’s get to Salasar Techno Engineering, shall we? The entity operates in the engineering infrastructure space. They help solar companies set up plants, telecom companies build towers and other such stuff. But it’s a tiny company that’s worth ₹700 crores. Tiny compared to some of the other listed entities.
Anyway, on 1st March, a media outlet published a story: “Multibagger stock for 2022: Experts recommend buy on this telecom infra share”. The stock being discussed? Salasar Techno Engineering.
And for a few days, there wasn’t a lot of activity on this article. A few eyeballs, here and there. But nothing extraordinary. Then, a few people began tweeting about the company, saying nice things about Salasar. And then, somebody posts a screenshot. It’s a conversation with a digital marketing company and the representative is asking the Twitter user to share his charges — for posting about Salasar. Immediately, the whole thing blows up as Twitter influencers who earlier posted about Salasar started deleting their tweets.
Oops!
And now the company is in the spotlight for possibly running a pump and dump scheme.
But here’s the thing. Sometimes, the promoters may not even know that somebody is hatching such a devious scheme behind their backs. Many companies hand over their PR mandates to an agency. And the agencies can get a bit ahead of themselves. They may be inclined to show their commitment to the cause, and push the stock price higher. What better way to get that retention money no?
And look, it’s not to say that every PR agency does this. Some are really good at their jobs and they do it with diligence. But a few others can get a bit too excited and commit the most fatuous blunders — like asking people to hype up a stock. Through it all, they may be doing a massive disservice to the promoters.
The point is — It’s hard to say what really happened with Salasar. It’s possible that the promoters pushed the story. Or it’s possible that the digital marketing agency pushed the agenda on its own accord. Or it's even possible that it’s the handiwork of a stray employee.
We don’t know. What we do know however is that those Twitter influencers need to hang their head in shame. They knew perfectly well the implications of talking up a stock, after being paid to do so. And yet they did it.
And by no means is this an isolated incident. In the past TV anchors and news media companies have also been accused of running the same gig. So you would be well advised to ignore stock tips from such entities. Don’t believe the influencers. Don’t believe the TV anchors and most certainly don’t believe anybody who tells you they know what the next “Multibagger” is going to be.
Until then…
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