Mumbai :Coal India Ltd (CIL), the world’s largest coal producer, surpassed Reliance Industries Ltd (RIL) as India’s most valuable firm by market capitalization on Wednesday.
This is the first time since February 2007 that the oil-to-yarn and retail conglomerate led by Mukesh Ambani has slipped a notch below from its position as the nation’s largest company by market value.
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RIL first became India’s most valued company in October 2006 when it toppled state-run Oil and Natural Gas Corp. Ltd (ONGC) from the top slot. In February 2007, ONGC overtook it for a brief while.
CIL’s shares rose 2.64% on Wednesday to close at Rs397.85 on BSE. At this price, the state-run firm’s market cap rose to Rs2.51 trillion. A 0.55% decline in RIL’s stock price to Rs754.80 per share meant its market value slipped to Rs2.47 trillion.
BSE’s benchmark Sensex, of which both RIL and CIL are part, rose 0.66%.
CIL has been closing the gap with RIL in terms of market value over the last few months and on 9 August, the difference was less than 1%.
CIL’s performance on the bourses received a shot in the arm with former chairman Partha S. Bhattacharyya’s decision to hike coal prices, soon before stepping down, a senior CIL official said on condition of anonymity.
Since 28 February, when CIL announced an increase in the prices of the commodity, the company has gained 21.2% on the bourses, while the Sensex gained 5.51%. The CIL stock had reached a record Rs422.30 on 31 May. At this price, its market cap was Rs2.67 trillion, but at that time RIL’s market cap was Rs3.12 trillion.
RIL has seen a major erosion of investors’ wealth over the last year. The declining market value has been triggered by factors including stagnating gas production from the D6 block in the Krishna-Godavari basin, and regulatory scrutiny over the possibility of gold-plating costs for the development of the block, India’s largest gas find.
While the conglomerate’s newer businesses like telecom and financial services are at an infancy stage, its fairly large retail operations are yet to contribute to its profit.
Investor disinterest in RIL and attraction towards CIL can be explained as a desire to invest in a safer company that has proven assets, a strong balance sheet and is backed by the government in uncertain market conditions, said Prakash Diwan, head of institutional clients group at Asit C. Mehta Investment Intermediates Ltd.
“Though it is possible that RIL soon regains the top position, but it is difficult for it to sustain there in the long-run,” he said. “Investors have been concerned over the fall in RIL’s stock price over the last 9-12 months and there has to be more clarity on the future as far as RIL is concerned.”
CIL’s market value may gradually scale up, especially if the government sells more shares in the company and the Street expects an intense competition between RIL and CIL in the coming days, Diwan said.
The coal miner had raised Rs15,200 crore through the country’s largest initial share sale in October.
It was included in the 30-member Sensex on 8 August.
Since CIL started trading, it has gained 16.2%, while RIL has lost 31.7%. The Sensex lost 19.4% in the same period.
Graphic by Ahmed Raza Khan/Mint