Mumbai: As Reliance Power Ltd’s shares stumbled out of opening bell—they would eventually close down 17.27%—Bombay Stock Exchange’s benchmark index, the 30-stock Sensex, fell 833 points, or 4.78%, to close at 16,630 on growing global worries over slowing economic expansion.
India was the biggest loser among Asian markets on Monday, followed by Hong Kong’s Hang Seng Index, which lost 3.64%, and South Korea’s Kospi Index, which fell 3.29%.
Reliance Power listed at Rs547, a premium of 21% to its issue price of Rs450, but selling pressure pulled it down to Rs355.05, a 21% discount to its issue price, before it closed at Rs372.30 a share.
Some analysts blamed Reliance Power’s weak listing as a contributing factor to the market fall and said the stock trading at a premium would have lifted the sentiment.
“When the IPO (initial public offering) was floated, the market was trading in positive territory and a lot of high net worth investors took loans to invest in the Reliance Power float. The poor listing from such a big IPO has not only resulted in losses for these investors, but has also sent negative signals about the short-term outlook of the market,” said Dinesh Thakkar, chairman and managing director of Angel group, a Mumbai-based financial services group.
There was palpable tension at the listing ceremony at the Bombay Stock Exchange that was attended by Anil Ambani, who owns 45% of Reliance Power, his mother, wife and son, besides the high-profile investment bankers who managed the offering that had been fully subscribed within a minute of opening on 15 January.
“This IPO is not about the number of times it got subscribed or...commitment it received. It’s about the power of India’s capital market and its retail investors,” said Anil Ambani at the ceremony.
While the weak listing meant Ambani may not have beaten his elder brother Mukesh Ambani in terms of paper wealth, he came much closer to it after the listing. Based on Monday’s closing prices, the value of his direct holdings in various group companies stood at Rs1.66 trillion, just 2.5% lower than Mukesh Ambani’s paper wealth of Rs1.70 trillion. Mint calculations ignore cross-holdings such as Anil Ambani’s indirect holding in Reliance Power through his ownership in Reliance Energy. The reason is Reliance Energy’s valuation already accounts for the holding in Reliance Power, and if a value is also assigned to the indirect stake held by the promoter, it would result in double counting.
Prior to Reliance Power’s listing, Ambani’s personal wealth stood at Rs1.44 trillion, 20% lower than Mukesh Ambani’s wealth of Rs1.81 trillion.
According to some market experts, leveraged investors who incurred losses in the Reliance Power IPO were forced to sell other holdings to make good their losses to brokers and financiers. The interest cost for a leveraged investor was about Rs110 per share, which meant that the break-even price for the Reliance Power listing was Rs560.
Investors in the non-institutional category, typically referred to as the HNI, or high net worth individuals, were allotted shares in the ratio of 100 for every 16,000 shares applied.
According to Siddarth Bhamre, head of derivatives at Angel Broking Ltd, while a number of players resorted to selling on the cash market, some trades on the derivatives segment imply increased hedging.
This is especially true in the case of Reliance Power, where traders were selling futures and buying put options to hedge against the risk of a further price decline. “If these traders had chosen to sell in the cash market instead, Reliance Power shares would have fallen even further,” he said.
A fair bit of action shifted to the cash market on Monday. Cash market turnover on the National Stock Exchange rose to Rs19,725 crore, or 48% of the trades done on the exchange. In the first six trading sessions in February, cash market turnover was much lower, averaging Rs13,500 crore, or 35.5% of derivatives trade.
The jump in trades on the cash market points to increased unwinding by leveraged players, grappling with the double whammy of falling prices and the losses incurred on financed investments in the Reliance Power IPO.
Retail investors were particularly disappointed with the listing of Reliance Power. Rameshchandra Rawal, 72, a retired manager of a textile mill in Ahmedabad, is one such investor. He was seen at his share broker’s office at the Kamdhenu complex in western part of the city that also houses the stock exchange, eager to sell 32 shares that he and his wife were allotted. He could not do so as the prices fell.
Sunil Raghu and Ashwin Ramarathinam contributed to this story.