Don’t play the market on unsolicited stock tips

These are sent by operators who want to exit or enter a stock at the cost of the retail investor's greed

If you have a trading account with a broker, there are chances that you have received stock tips through text messages (SMS). The sender’s name would suggest the message is from a reputed broker. But, there is a strong likelihood the sender is using reputed broker’s name to drive up or down some stock.

“In every bull run, many first-time investors come to the stock market to try their hands at trading. The group of people manipulating prices of a stock targets such individuals by sending out unsolicited messages. Once retail (individual) investors get in, these operators start exiting the stock,” says Venu Madhav, chief operating officer, Zerodha.

The mechanism is simple. Operators start spreading rumours after they start buying a stock. To make the messages look authentic, they use names that look like it’s from an established broker. The sender’s name will appear as AGLBRK (Angel Broking), KARVYB (Karvy Broker), MOTSWL (Motilal Oswal), and so on.

On May 8, Shubham Sharma got a text message on his mobile that tipped him to buy Jackson Investments stock at ~4.12 a share. The message said the short-term target was ~7.50 to ~12 and the stock was expected to touch ~45 within a month.

The stock had started moving upwards in five trading sessions before the message was sent out. Prior to that, it was stagnating at ~3.69 for a few days. Over the next six sessions, it went up to ~4.61 and then started correcting. Slowly, over the next few days, it came back to its original price of ~3.69 and has been there since the start of July. “Many individuals trade based on tips from various sources. An investor who is not seasoned usually falls for such messages,” says Anupam Agal, head business operations, Motilal Oswal Securities.

Unsolicited SMS is another way gullible investors are targeted. These days many fake websites have come up, too, that promise investors profit on every trade if they buy a subscription. Recently, Gaurav Mashruwala, a Mumbai-based financial advisor, was shocked to discover a website was giving out his registration number with the Securities and Exchange Board of India (Sebi) to potential customers. The website charges up to ~58,500 annually to provide tips to investors for trading in futures and options. Mashruwala was not even aware of the existence of such a website.

Experts say the only way investors can avoid getting trapped by fraudsters is by ensuring the source of information is authentic. If they cannot verify the source, they should ignore the message. Approach the broker to check if it sends tips of mobiles. Most brokers don’t. In website offering stock tips, check with the Sebi-registered advisor if he is offering the services through the website.

“There’s no mechanism to report this to the markets regulator. The only option is to approach the Sebi-recognised investors’ association and report such matters to them,” said Hinesh Doshi, vicepresident of the Investors’ Grievances Forum. He says the association has been reporting the problem to the markets regulator for around a year.

Sebi recently sought help of the Telecom Regulatory Authority of India to counter the menace of fake investment tips. It has also approached the cyber crime investigation cell of the police to discuss measures. Some brokers, including Motilal Oswal Securities, have also written to the market regulator and stock exchanges, and filed a police complaint after they discovered operators were sending messages that appeared to be from them.