The Big Bull Harshad Mehta and the Scam That Shook India

Harshad Mehta is a name that evokes strong reactions across the Indian financial landscape. For some, he was a stock market genius who revolutionized investing in India. For others, he was a fraudster who manipulated systemic loopholes and triggered one of India’s biggest financial scams. This article delves deep into the extraordinary journey of Harshad Mehta — his rise, his techniques, the infamous 1992 securities scam, and his legacy.

Humble Beginnings

Born in 1954 in Raipur, Harshad Mehta came from a middle-class Jain family. In 1973, he moved to Mumbai with a desire to escape financial struggles and make something of himself. He enrolled in Lala Lajpat Rai College while doing odd jobs to support himself — from selling scrap plastic to delivering cement personally.

In 1977, Harshad graduated and took a job as a clerk at New India Assurance Company, earning a modest salary of Rs. 600. Simultaneously, his younger brother Ashwin Mehta began working at ICICI. Despite several side business attempts, they found no major success until they decided to try their luck in the stock market.

Entering the Bombay Stock Exchange

In the early 1980s, trading at the Bombay Stock Exchange (BSE) was entirely manual, and only jobbers and brokers were allowed on the trading floor. Harshad managed to get a jobber’s badge under broker P Ambalal. On his very first day, he lost Rs. 2,000 — a significant amount back then. But instead of being discouraged, he saw it as a lesson.

Within months, Harshad became one of the most skilled jobbers on the BSE floor. He realized that information was power. By obtaining insider information (which was legal at the time), he could predict stock movements ahead of the market. He built a network of informants — from labor union leaders to company insiders — giving him access to daily production data and other operational insights.

Insider Trading and Pump-and-Dump Strategy

Harshad’s strategies evolved. By 1982, he was using a technique called “pump and dump.” He would buy low-trade volume stocks in bulk, causing prices to rise due to supply constraints, and then sell his holdings at the inflated prices. These maneuvers helped him earn significant returns for both himself and his clients.

But success in the market came with risks. On March 18, 1982 — a day now remembered as Black Thursday — the stock market crashed suddenly. Harshad suffered a Rs. 10 lakh loss, forcing him to mortgage his wife’s jewelry to pay brokers. For several months, Ashwin’s wife supported the household.

The Comeback: Grow More Consultants

Despite the setback, in June 1982, Harshad and Ashwin launched their own firm — Grow More Consultants. Their aim was to provide portfolio management services to wealthy investors. With an initial investment of Rs. 5 lakh, they started trading from a modest office.

Harshad quickly proved his mettle again by investing in undervalued tea company stocks. As tea prices rose, so did the value of these shares, earning massive profits for Grow More and attracting more clients. By 1985, Harshad was already being hailed as a stock market magician.

The Bear Attack and Reputation Management

However, the market had its own legends — one of them being Manu Manek, a veteran known for short selling (betting on stock price falls). In 1986, Manu and his bear cartel shorted shares of SPIC, a company Harshad was heavily invested in. Rumors spread that Harshad owed over Rs. 1 crore to the BSE.

To protect his reputation, Harshad repaid all dues 14 days early. His move shocked the bears and cemented his position in the market, though it came at a personal loss of Rs. 1.5 crore.

Entry into the Money Market

Not content with brokering and investing other people's money, Harshad wanted massive capital for himself. This desire led him to the money market — a system where banks loaned each other short-term funds using government securities as collateral.

Typically, instead of exchanging physical securities, banks used Bank Receipts (BRs) as proof of security. Harshad discovered two key loopholes:

Funds parked temporarily in broker accounts could be invested before the actual transaction.

Fake BRs could be issued from small banks like Bank of Karad, enabling him to receive large sums without real collateral.

Using these tricks, Harshad diverted thousands of crores into the stock market, artificially inflating share prices. Between 1990 and 1992, the Sensex soared from 800 to 4,500 points — an astonishing 460% increase.

Living the High Life

With wealth flowing in, Harshad lived like royalty. He purchased a 15,000 sq ft penthouse, 29 luxury cars (including India’s first imported Lexus), and became a media darling. Magazines like Business Today featured him, praising him as India’s highest taxpayer and the man who made the stock market accessible to the common man.

The Fall: 1992 Securities Scam

Behind the glitz, a storm was brewing. In 1991, RBI began suspecting misuse of BRs and initiated inquiries. Meanwhile, Harshad had taken Rs. 500 crore from State Bank of India (SBI) using a fraudulent BR, but failed to repay in time. He even bribed an SBI official to manipulate records, but the scam came to light when discrepancies were found in April 1992.

Journalist Sucheta Dalal broke the story on April 23, 1992, revealing Harshad Mehta’s name behind the missing Rs. 500 crore. Investigations soon exposed a scam exceeding Rs. 4,000 crore. The stock market crashed, small investors lost fortunes, and multiple banks collapsed — including Bank of Karad.

Arrest, Trial and Death

On June 4, 1992, Harshad and Ashwin Mehta were arrested. Their assets were seized and a long legal battle ensued. Harshad was in and out of jail for several years. In December 2001, at age 47, Harshad Mehta died in police custody due to a heart attack.

Legacy

Even decades later, Harshad Mehta’s story remains controversial. His family claims he was targeted unfairly for practices that were common in that era. Critics see him as a manipulative fraudster who exploited the system for personal gain. The truth likely lies somewhere in the middle.

He was a visionary who saw opportunities in inefficiencies, but he pushed the system beyond its limits. His story serves as a powerful reminder: unchecked ambition and systemic loopholes can create bubbles — but eventually, all bubbles burst.