Many people ask me “should we trust a broker’s report”?

The answer is ‘I do not know’. It depends.

Sadly today there is no single BIG pure Only retail broker. So let us see what happens when you are a broker, a pms provider, a mutual fund, a life insurance company, an nbfc (or bank) running a big ‘loan against shares’ portfolio, corporate advisory, MnA, corporate fund raising, IPO managing….there is a conflict of interest. HUGE CONFLICT OF INTEREST.

A middling corporate approaches such a big house and says “we need to raise money for our operations”. Operation subterfuge starts.

The bank/ nbfc gives them money and the corporate becomes a client.

After 90 days the ‘Finance house’ wants to make more money out of the client without taking on more risk. So if it is a bank, they gun for the ‘salary account’. The account holders are then sold (oops investments advised) for them to buy tons of ULIP (tax saved, right) and their Income Tax returns are filed free. Great tons of information reaches the ‘Fin house’. Let us call the fund house ‘Cindrella Fund house’ aka CFH.

Then CFH starts gunning for creditors account, debtors accounts – i.e. vendors and dealers. So more business. These businessmen are sold cars, tours, office loans, house mortgage…so more business.

Then the company needs more money. In come the ‘Investment banking arm’. Again fees. Now the shares have to be listed. So brokerage accounts are needed – ever wondered why big houses need your ‘small’ Rs. 2 crores equity portfolios? A big retail book does wonder for the valuation of CFH!

A research report says ‘Buy’. This is the time when the real good clients are asked to load up.

Then the price goes up…and there is some unloading. Fine so far.

4 years later there is a FPO. Now CFH issues a ‘Buy with …’ report. The HNIs are told not to participate.

Their mutual fund picks up shares, their insurance arm picks up the slack.

Now the brokerage house does not care about your view AT ALL.

You can go hang.

Wait a minute The same game with the same players…..has to be played in another company. Another supporter. another..placement..need more buyers…

and the cycle goes on…and another sucker is born…