Mumbai: The shares of some large-cap (high market capitalization) companies that gained the most in the period between the US Federal Reserve’s rate cut on 18 September and stock market regulator Securities and Exchange Board of India’s (Sebi) decision to tighten foreign inflows through participatory notes (PNs) on 16 October, have been the worst hit over the past three days.
Indian stock markets saw around $6 billion (Rs23,880 crore) inflows from foreign institutional investors (FIIs) between 18 September and 16 October, but the Sensex, the benchmark index of the Bombay Stock Exchange, has since shed around 1,500 points.
PNs are financial instruments that help investors and institutions, which are not registered with Sebi, to invest in Indian securities. Sebi’s new rules on PNs, which have been drafted in consultation with the finance ministry, could, if enforced, spell a partial ban on a class of investments that accounts for more than 50% of FII investments in India.
The largest gainers in the one-month period between 18 September and 16 October were Reliance Energy Ltd (REL) and Reliance Natural Resources Ltd (RNRL), two companies belonging to the Reliance-Anil Dhirubhai Ambani Group (R-Adag). While shares of REL gained 105.5%, those of RNRL gained more than 86%. However, after Sebi’s announcement, shares of REL lost nearly 30% in just three days, the largest loser in the period.
“A few sectors that were the favourite investment zones of FIIs, such as power, banking, metals and real estate, have witnessed maximum erosion during the past three days,” said Harjit Singh Sethi, chief executive of Mumbai’s Almondz Securities Ltd. “Some of these companies had achieved huge gains during few trading sessions in early October than what they had gained over the past one year. Since these stocks were at the frontline, they got fired down first.”
According to Sethi, PNs were extremely popular among foreign funds and other classes of investors because “large FIIs such as Merrill (Lynch), Morgan (Stanley) and UBS had marketed them heavily in the international market”.
“Even Indian companies like ICICI Bank Ltd and Kotak Bank Ltd, played their part in marketing PNs as structured products in the international market,” said Sethi.
“Now that the regulator has capped the product, there is panic among these investors,” he added.
The second largest loser in the last three trading sessions has been Tata Power Co., shares of which lost almost 29%. The shares had gained more than 80% between 18 September and 16 October.
Other shares that similarly gained rapidly and lost even more rapidly include those of Jaiprakash Associates Ltd, JSW Steel Ltd, Sesa Goa Ltd, Steel Authority of India Ltd, Jindal Steel Ltd and Adani Enterprises Ltd.
While shares of Jaiprakash Associates gained about 35.6% between 18 September and 16 October, they lost 18.6% in the last three trading sessions. Shares of Sesa Goa, which had gained more than 55% in the period, lost 18.6%. And while shares of JSW Steel gained 41.75% and lost 11.49%, those of Jindal Steel & Power gained 66% and dropped by 16.05%.
Ashwin Ramarathinam contributed to this story.