Once India’s big boy on the bourse, Jignesh Shah is now chased by investors duped by his firm
unaware of the goings-on at NSEL.
His father, Prakash Shah, an iron and steel trader, moved to Mumbai from Gujarat in 1963. Jignesh grew up in Mumbai where he studied software engineering at Mumbai University. He started his career at
BSE where he learnt the complex working of a stock exchange. On his international assignments to the Hong Kong and Tokyo stock exchanges as well as Nasdaq, Jignesh found what he was going to do back home. The engineer in him dreamed of transforming trading in India with computer technology.
In 1995, he launched an innovation which would revolutionise trading in India. From a 250 sq ft office in South Mumbai’s Fort area, with just Rs 5 lakh raised by mortgaging his flat, he launched Financial Technologies ( FTIL), the holding company of NSEL. Jignesh created ODIN, a front- end software and risk- management system for broking houses, which became a rage with traders in stock and commodity futures, and garnered a 70 per cent market share.
It was a feat of enterprise and innovation, yet it was quite in order for a globe-trotting, stock-savvy engineer. What came next was incredible. In 2002, Jignesh’s technology company applied for a licence for a commodity exchange. That was unheard of in the financial world of Mumbai. What could a tech start-up do with a bourse licence? Within months of getting the licence, he set up MCX, which competed with the BSE. By offering investors online trading in commodities, MCX broke new financial ground. It created hordes of commodity investors even in the deep recesses of the country. MCX put metal on the mind of the Indian investor when other commodity exchanges were focused on agri products. Jignesh not only identified a large number of new investors, but also made commodities as lucrative an asset class as equities. MCX soon became India’s largest commodities exchange, and it continued to grow. In 2011, it became the world’s fifth-largest commodity exchange, replacing China’s Dalian Commodity Futures Exchange, according to the
Washington-based Futures Industry Association. For the first quarter of fiscal 2014, MCX had an average turnover of Rs 48,000 crore. Fired by his early success, he saw future in emerging markets. He went on to set up exchanges in Singapore, Bahrain, Dubai, Mauritius and Botswana.
With the success of FTIL and MCX, which were also listed on the bourses, Jignesh found himself in good fortune. It showed on him. Suave and quick-witted, he was often seen in fine clothes. He also shifted his address from suburban Kandivli to a plush double-storey bungalow in Juhu. In the city of cinema, he challenged reel life with real life, and won. He was one of the very few financial wizards who had become celebrities.
But his fall was as dramatic as his rise—Jignesh, the feted wonderkid of the financial capital of India, sat before a police officer, trying to prove his innocence, shorn of his wit and
IN THE CITY OF CINEMA, HE CHALLENGED REEL LIFE WITH REAL LIFE, AND WON. HE WAS ONE OFTHE FEW FINANCIALWIZARDS WHO HAD BECOME CELEBRITIES.
daring while thousands of duped investors seethed with anger.
Not only his halo, his fortune too has taken a hit. After the police probe into the operations of NSEL, the total value of shares of parent company
FTIL and its affiliates plunged to $100 million at the end of August this year from their peak of $2 billion.
What was his tragic flaw? Was Jignesh greedy or careless or too confident? The trouble, according to market experts who have observed him closely, lay in his eagerness to grow too big and too fast. Critics say he was in a big hurry. Not only did it leave little time for due diligence, it also gave executives space and opportunity for bending rules.
Investors say timely action by the Government could have saved many of them. “Had the Government acted in April 2012, when MCA issued the first show-cause notice to NSEL, 80 per cent of investors would have been saved,” says Ketan Shah, a duped investor from Mumbai. Investors such as him attribute the delayed government action to Jignesh’s proximity to influential people.
Jignesh has refused to talk, citing the ongoing investigations. Responding to an email, an FTIL spokesperson said that Jignesh, “as non-executive director of NSEL was not aware of any ‘illegal activities’ in NSEL, which he has categorically pointed out to various investigating authorities.”
A few brokers are willing to give Jignesh the benefit of doubt. “He is a technocrat. He relied on people and those people had integrity issues,” says Motilal Oswal, whose broking firm has an investment of Rs 250 crore stuck in NSEL. But he agrees that Jignesh cannot run away from his responsibility for what happened. “This is definitely a failure of the management.” Arun Dalmiya, Secretary of the NSEL Investors’ Forum, alleges that everything was done with the knowledge of the management.
“The NSEL crisis has destroyed everything that I have worked hard to build over the past two decades,” Jignesh said in an emotional statement that announced his resignation as the vice chairman of MCX on October 31. He might have been claimed by the very animal spirits he unleashed in the Indian market. Insiders say he is not the confident and proud man he used to be. His body language is tame and his conversation no longer has snatches of Bollywood dialogues. If an ambitious Jignesh’s NSEL operated in a regulatory vacuum, the investors too traded with suspended disbelief. His fall, a sad footnote in the story of India’s economic resurgence, is also a cautionary tale for entrepreneurs, investors as well as regulators.