Mumbai: Shares in mobile phone operator Reliance Communications and utility firm Reliance Infrastructure , both controlled by billionaire Anil Ambani, fell nearly 9% each on Monday as investors reacted to a decision to drop the shares from the Bombay Stock Exchange (BSE) index Sensex.
The two firms will be removed from the Sensex, on 8 August, and will be replaced by Coal India, the world’s largest coal miner, and drugmaker Sun Pharmaceutical Industries .
The Bombay Stock Exchange take into account various factors including market capitalization (m-cap), listing history, an “acceptable track record” and sectoral representation in decisions for the main index, according to the information available on the exchange’s website.
Shares in Reliance Communications, India’s second-largest mobile operator, and Reliance Infrastructure, are the two worst Sensex performers this year - down 34% and 31% respectively, while the main index has fallen 13%.
As of Friday, the last day of trading before the announcement of the exclusion was made, Reliance Infra had the smallest market capitalisation of the 30 companies in the index, Reliance Comm was the third-smallest.
The exclusion adds to existing troubles for Anil Ambani: Reliance Comm is saddled with more than $7 billion in net debt and has reported seven straight quarters of profit declines. It has been unsuccessful in its efforts to cut debt so far.
“The Anil Ambani group has been under pressure for various reasons and the removal of two of its main companies from the Sensex takes away the element of visibility,” said Jagannadham Thunuguntla, head of research at SMC Global in New Delhi.
“The companies have lot of challenges to address on the operational as well as investor perception fronts,” he said. “The exclusion has impacted both the institutional as well as retail investor sentiment towards these stocks.”
An ongoing investigation into the 2G spectrum allocation scandal has also been an overhang on the Indian telecom companies, with fates of dozens of licences hanging in the balance.
A unit of Reliance Comm and three group executives are among those charged by Central Bureau of Investigation (CBI) in the corruption scandal, which a state auditor CAG said may have lost the nation up to $39 billion in revenue.
Reliance Infra, which is working on three subway projects in Mumbai and New Delhi, has faced severe delays with its first subway line, now set to be operational in late 2012 in Mumbai.
The company also announced a Rs1000 crore ($222 million) share buyback in February to bolster its share price, which had slumped after a selldown in the group’s stocks.
Shares in Reliance Communications fell as much as 9.4% on Monday to Rs86.25, their lowest level in nearly three weeks, while Reliance Infrastructure dropped 8.7% to Rs530.20.
Reliance Communications and Reliance Infrastructure, a power company that also has interests in engineering and construction, were trading down 6.8% and 5.9%, respectively, by 1 pm. The Sensex was down 1.5%.