Reliance Group shares tank following Sebi consent order

Reliance Group shares tank following Sebi consent order

Mumbai: Aday after Reliance Group chairman Anil Ambani characterized a consent agreement with the market regulator as being voluntary, shares in group companies fell on Monday.

On a day when the Sensex rose ending a two-day losing streak, share prices of Reliance Group (earlier known as the Anil Dhirubhai Ambani Group) companies listed on the Bombay Stock Exchange (BSE) fell 4.77-8.45%. The Sensex, BSE’s benchmark equity index, closed 0.12% up at 18,882.25 points.

Capital market regulator Securities and Exchange Board of India (Sebi) passed a consent order on Friday, settling a case against Reliance Infrastructure Ltd (R-Infra) and Reliance Natural Resources Ltd (RNRL) and five of their directors, including Ambani.

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The case, which pertained to the alleged routing of money raised overseas into Indian stock markets in 2007, was settled for a fee of Rs50 crore and commitments from the companies and their directors not to invest in the secondary market. The directors won’t do so for a year and the companies for two years. Ambani said it was wrong to call the action a ban, since it was voluntary.

The companies directly involved in the case, R-Infra and R-Power (which absorbed RNRL), fell 7.84% and 6.13%, respectively.

R-Infra ended at Rs735.70, the lowest close since May 2009, while R-Power fell to Rs137.90, its lowest since March 2010.

The biggest loser among group companies was Reliance MediaWorks Ltd, which lost 8.45% to close at Rs182.05 per share.

“This was expected. Corporate governance has become a very important aspect considered by investors, not only globally, but domestically as well," said S.P. Tulsian, Mumbai-based independent stock market analyst.

At a press conference convened on Sunday, Ambani had said that his group would be communicating with investors and analysts to address their concerns. Growth plans of his group companies would not be impacted as the companies mentioned in the Sebi order were allowed to invest in primary issues, open offers, buybacks and mutual funds, Ambani had said.

The drop in Reliance Group stocks could be stemmed by Tuesday evening, Tulsian said.

“The worst is over for R-Infra and R-Power with the consent order being passed by Sebi. There should be no reason for investors to sell these stocks any further, unless of course the markets tank," said V.K. Sharma, head of private broking and wealth management at HDFC Securities Ltd.

Keeping the high volume, low delivery and intra-day price movements on the R-Infra counter in mind, both Tulsian and Sharma agreed that there might have been some ‘short covering’ by investors on the stock.

Short covering refers to the practice of purchasing securities to close an open short position.

This is done by buying the same type and number of securities that were sold short. Traders cover their short positions when they speculate that securities will rise and make a profit by purchasing them below the original selling price.

“Typically, there is a lot of arbitrage that happens on stocks which remain in the news, and arbitrageurs may have been in play with respect to Reliance Infra today (Monday)," Tulsian said.

Reliance Group stocks, which have a total market capitalisation of Rs1.01 trillion, have underperformed the Sensex over the last year.

While R-Infra’s shares have lost around 34.5% over the last year, Reliance Power has lost 13.38%, Reliance Communications Ltd has shed 31.17% and Reliance Capital Ltd has seen its share prices lose around 36%. Over the same period, the benchmark index, Sensex, gained 7.56%.

Reliance Power has sued HTMedia Ltd, publisher of Mint,in the Bombay high court overa 12 May front-page story inMint that it disputed. HT Media is contesting the case.

Graphic by Yogesh Kumar/Mint