Scam alert: How investors are getting fooled everyday

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and videos on YouTube. You can also watch The Daily Brief in Hindi.

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In today’s edition of The Daily Brief:

• Two New Stock Market Scams Exposed

• Revolutionary Obesity Drugs Changing Lives

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Two new stock market scams exposed

The stock market can be full of contradictions. On one hand, the Indian stock market grows stronger every year, helping more and more people achieve their financial goals. But on the other hand, it’s also a place where a lot of folks lose big money—and not just because of bad investments, but also to scams.

We have seen it all— from pyramid schemes promising “double your money” returns every week, like the one that blew up in Assam recently, or scammers impersonating brands to trick people. Sadly, we’ve seen this happen to some of our clients at Zerodha too.

Today, we want to tell you about two more scams that you should know about.

Let’s start with the first one. Imagine this: a company launched an IPO to raise money, claiming they will use the funds to buy some fancy software. But the catch is, that the software was supposed to come from a third-party vendor, which, as it turns out, was a shell company. The so-called “vendor” had zero ability to actually build or deliver the software they promised.

And the unfortunate part is that investors didn’t just buy into this IPO; they oversubscribed it by 345 times. So what exactly happened? Let us take it from the top.

On May 31, 2024, a company called Trafiksol ITS Technologies filed for an IPO. They’re in the business of making intelligent transportation systems—think traffic automation, toll management etc.

They planned to raise about ₹45 crores, with 40% of it—₹17.7 crores—earmarked for buying a software called Integrated Command Control Centre Software (ICCC). This ICCC software is a crucial piece of tech for running smart cities and is typically imported from international vendors, because Indian technology is simply not there yet to deliver something like this.

Fast forward to the subscription period between September 10 and 12. Investors went wild. Against the ₹45 crores the company wanted, they poured in ₹10,000 crores.

But not everyone joined the herd. On September 16, just a day before the shares were set to list, a complaint landed in the inbox of SEBI and BSE. The complaint, filed by the ‘Small Investors’ Welfare Association - SIREN,’ flagged something fishy about the third-party vendor supplying this ICCC software. SEBI put the listing on hold and started digging.

Investigations started and went on for a couple of months. SEBI sniffed around, issued show-cause notices, and pieced together what was happening. By December 3, they finally issued an order confirming that the vendor was in fact a shell company. The software vendor couldn’t build the promised software, much less deliver it.

At present, SEBI has ordered the company to return the funds to investors, along with the interest it earned while the money was locked up. The IPO is cancelled, and the shares will be cancelled.

But what SEBI uncovered and how they figured out what was happening, that’s some straight-up spy movie material, worthy of its own Netflix series. (who knows, maybe one day we will see a new series)

Here are the three big problems SEBI uncovered during the investigation.

1. No operational capability

When SEBI checked the vendor’s office, they found it locked and empty. Clearly, no business was actually happening there. On top of that, the vendor didn’t have the skills or tools needed to create the ICCC software. This made it clear they couldn’t deliver what they had promised.

2. Fabricated financials and bogus client list

SEBI discovered that the vendor’s financial documents for all three previous financial years were created on the same day, strongly suggesting they were fake. Additionally, the client list submitted as proof of credibility was bogus— two of the three mentioned companies had never even conducted business with the vendor. These findings highlighted that the vendor existed only on paper.

3. Suspicious vendor selection process

The vendor and Trafiksol were introduced by a middleman, with no open process to invite tenders or evaluate multiple vendors. The quote for the ICCC software was given before the two parties even met, and only after SEBI got involved did they actually meet. This suggests that the quote was likely fake and used to make the transaction look legitimate, pointing to a possible attempt to misuse the IPO funds.

For now, the company is still off the rails. While the vendor has been exposed as a shell company, the bigger question remains unanswered—was this all a deliberate attempt to embezzle funds and siphon off IPO money?

But there are plenty of questions to think about. Was there no background check done before getting a quote from the vendor? Or did the company know all along? Did Trafiksol itself orchestrate this, and are now simply denying it? What about the merchant banker—did they fail in their duty to conduct due diligence? And the CA who signed off on those suspicious financial statements—were they complicit too?

Too many questions, but one thing is clear—SME IPOs, with all their buzz, have become a breeding ground for shady activities. This case is just another in a long string of issues that have surfaced, and it’s likely not the last. For context, SME IPOs had already raised ₹6,300 crores in FY24-25 till November, could there still be more skeletons waiting to be uncovered?

Note - The matter is subjudice before SAT. The description of the issue is based on publicly available information in the SEBI order.

Now, if you thought the SME IPO scams are wild, let me tell you about another shady case that SEBI cracked wide open.

This one is about a man known as “Baap of Chart”—a popular financial influencer who promised his followers sky-high stock market returns. It already smells suspicious to us. And if that isn’t enough, check out the entry of this guy in one of his master class workshops.

Well, he’s good at making grand entries, but not so good at scamming people.

SEBI’s investigation revealed that he wasn’t just giving free advice out of the goodness of his heart, he was running an unauthorized investment advisory service, collecting crores from unsuspecting investors.

Here’s how it worked. Under the guise of offering “educational courses” on stock market trading, he and his team provided direct buy/sell recommendations to their clients, for a fee of course. These weren’t ordinary classes—they were packaged with promises of guaranteed returns, pulling in innocent investors who wanted to strike gold in the market. Over time, he and his six associates managed to rake in ₹17.2 crores in fees.

You know the funny part? This self-proclaimed stock market guru wasn’t even profitable in his own trading! SEBI found that he concealed his trading losses while promising extraordinary returns to his clients. His flashy YouTube videos and social media posts were all part of the act to reel in more people.

SEBI wasn’t having any of it. After months of investigation, they banned him from the securities market for a year, with his associates getting six-month bans. On top of that, they’ve been ordered to refund the ₹17.2 crores to their clients, plus penalties.

The lesson? If someone promises “guaranteed” stock market returns, run the other way. As SEBI tightens its grip on these so-called financial influencers, it’s a reminder to always verify credentials and think twice before following the hype. When it comes to money, there’s no such thing as a shortcut.

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Revolutionary obesity drugs changing lives

In the next story we are diving into what might be the biggest disruption in healthcare and consumer behavior we've seen in decades - weight loss meds. Earlier this year, Morgan Stanley projected that the global market for obesity drugs like Ozempic could hit $105 billion by 2030 - that's a 15-fold increase from today's $6 billion valuation. This is clearly much bigger than just a weight loss story.

Let me paint you a picture of why this matters for people around the world and especially here in India. According to a study published in the reputed Lancet journal, we're facing a significant health crisis. 40% of Indian women and 12% of Indian men are dealing with abdominal obesity. In the urban areas, these numbers are even more striking - nearly half of urban women face this issue. What's particularly concerning is how this varies by age: for women between 30-39 years old, about 49.3% have abdominal obesity, and this jumps to 56.7% for women aged 40-49.

Source: The Lancet

Now, drugs like Wegovy, Mounjaro etc were originally developed for diabetes, but researchers started noticing some remarkable and unexpected effects. Two groundbreaking studies especially have everyone talking. The first, from late last year, looked at over 500,000 patients suffering from opioid use disorder and more than 800,000 with alcohol use disorder. The findings were stunning: people taking these drugs had a 40% lower rate of opioid overdose and a 50% lower rate of alcohol intoxication.

Source: onlinelibrary.willey.com

Then last month, an even more detailed study published in JAMA added fascinating depth to these findings. Looking at over 14,000 people in a weight management program, they discovered that nearly half of those who were drinking alcohol when they started these medications naturally reduced their consumption. What's particularly interesting is that this wasn't just a small change - the reduction was significant enough to have major health implications potentially. And here's the key part: these people weren't trying to drink less - it just happened naturally, suggesting these medications might be fundamentally changing how our brains respond to certain substances.

But it's what Morgan Stanley's research is showing about food that's really catching attention. These drugs are completely rewiring people's relationship with food, particularly processed foods. Their surveys found that people on these medications are not only eating less overall, but half of them have drastically cut their consumption of sugary drinks, alcohol, and snack foods. Nearly a quarter stopped drinking alcohol completely.

The food industry is watching this with growing concern. The New York Times recently reported that major food companies are panicking because people on these medications are losing their taste for ultra-processed foods. And this timing is particularly crucial for India, where our urban areas are seeing a major shift toward processed foods. In our wealthiest urban households, nearly 30% of daily calories now come from processed foods, and states like Kerala and Tamil Nadu are seeing obesity rates as high as 65 and 58% respectively.

Food companies are scrambling to adapt. Morgan Stanley predicts that up to 9% of the U.S. population could potentially be taking these drugs by 2035, and companies will need to fundamentally rethink their products. They're already developing smaller portions and healthier options. But there's an unexpected upside too - their research shows that people who start these medications are twice as likely to exercise regularly, potentially boosting industries from fitness equipment to athleisure wear.

This isn't just about weight loss anymore. Morgan Stanley's recent analysis shows these drugs could help prevent more than 200 chronic diseases, from diabetes to heart disease. One clinical trial found a 73% reduction in diabetes risk and a 20% drop in cardiovascular events. We may be looking at a treatment that could potentially add up to 10 years to today’s life expectancy.

Now, this revolutionary class of drugs is about to see major developments in India. According to Reuters, Novo Nordisk, the Danish company behind Wegovy, is planning to introduce it here by 2026. But there's interesting competition brewing - their India team is pushing for an earlier 2025 launch to avoid falling behind Eli Lilly, which plans to bring its weight-loss drug Mounjaro to India next year.

But here's where it gets even more interesting for the Indian market. Indian pharmaceutical giants aren't sitting and waiting for competitors to eat into their market share and profits. Companies like Dr. Reddy's, Biocon, and Sun Pharma, are already gearing up to manufacture more affordable versions of these drugs once the patents expire. Dr. Reddy's in particular has been investing heavily in infrastructure so they can be ready to launch immediately when the main patent expires in 2026.

Source: Our World in Data

This timing couldn't be better when we look at India's obesity crisis. The Lancet study shows that in our urban areas, nearly half of women face abdominal obesity, and the numbers are rising in rural areas too. Indian doctors are already reporting huge interest - as one Mumbai physician told Reuters, "Every patient is asking about these weight-loss injections."

Source: Our World in Data

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Tidbits

1. The Lok Sabha passed a bill amending five banking laws to enhance governance and depositor protection. Key changes include raising the "substantial interest" threshold for directorships, standardizing reporting timelines, and allowing up to four nominees per account.

2. South Korean President Yoon Suk Yeol's martial law decree faced unanimous parliamentary rejection, forcing a swift reversal. The political fallout has deepened his unpopularity, destabilizing South Korea’s democracy and economy amid public outcry.

3. India saw 92,000 patent applications in FY24, reflecting a booming innovation culture across technology and pharma. Strengthened IP policies are fostering investor confidence, and job creation, and positioning India as a global research hub.

4. The RBI intervened with $2 billion in the forex market as the rupee touched 84.76 per dollar. Despite stabilizing at 84.68, concerns remain over further depreciation, as forex reserves continue to decline under global currency pressures.

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