HOW TO SPOT A SCAM IN MARKET?

HOW TO SPOT A SCAM IN MARKET? Scams in the stock market are common today. Wondering how you can avoid being affected by them? You must understand the phenomenon and learn to recognize the telltale signs. Read on to know how! With activity in the stock market ever on the rise, scamsters are aware that every investor wants to subscribe to stocks from particular industries, such as software as part of their portfolio because these stocks yield higher returns. Here’s the architecture of a typical scam: Currently, more than 4500 companies are listed in the B2 category on the BSE. The B2 category is a subset of listed shares that have higher market capitalization and liquidity than the rest. Stocks of these companies are hardly traded as these companies are no longer in operation. Scamsters take over and change the entity of such a company to that of a software company. They hire people, install required equipment and claim to process software export orders. In reality, they do not have the requisite infrastructure or personnel to process export orders. Next, they set up a subsidiary abroad by hiring a representative to run operations or by renting a small place. They conduct export transactions using free ports, such as Hong Kong, Singapore, and Dubai. They pay cash in India and obtain dollars from the subsidiary. In the company books, these dollars are reflected as income from exports. The promoters then hire market operators to publish stories indicating huge orders or collaborations and predict excellent profits for the company. This is substantiated by the net profit figure boosted by the forged export income in the company’s books. The Earnings Per Share (EPS) for the company appears healthy and is priced low when compared to other companies, and the stock is deemed to be an excellent buy. A few market operators then start transactions on the stock and increase liquidity for the counter. Consequently, the trade volumes for the share rise. The share price increases 3 to 5 times in a short period of time. The promoters then start taking advantage of this buoyant situation and sell their stocks to investors. The price of the share goes down suddenly and the investors end up with dead stock. The promoters are able to obtain a good price for stocks of their company. Further, they get a tax rebate by converting hoarded cash into export income! So before investing in any stock, do check the company’s background carefully and performance of the stock at least for the past two quarters. It’s best to avoid investing in stocks that show too much fluctuation in prices...............