Mukesh v Anil Ambani

In real life, the two Ambani brothers — Mukesh and Anil — may not be close to each other but in the roller-coaster, volatile world of the stock market which decides who is the richest, they are narrowing the gap between them rapidly. One witnessed the exciting pace between the two for the number one position in "riches" in 2007.

Mukesh became the richest Indian in India in 2007. But Anil was not very far behind. The total market cap of Mukesh’s companies — Reliance Industries, Reliance Petroleum, IPCL (which has now been merged) and Reliance Industrial Infrastructure Ltd — was Rs 1,93,980 crores, or $48.5 billion, as on December 11, 2007.

Anil’s wealth in terms of market capitalisation of his six listed companies was Rs 1,66,876 crores, or $41.7 billion, as on December 11, 2007. Since wealth here is calculated on the basis of their holdings in their companies it is interesting to see how their shares suddenly shot up almost in tandem in the middle of the year without any or little change in the fundamentals of their companies.

Stocks of the Mukesh stable went up like this: Reliance Industries scrip, which was Rs 1,284 on March 15, 2007, closed at Rs 2,818 on November 29, 2007, a growth of 120 per cent, Reliance Infrastructure from Rs 416 to Rs 1,886 in the same period, a rise of 260 per cent, and Reliance Petroleum Limited from Rs 69 to Rs 215, a rise of 213 per cent from March to November, though not a single litre of petrol was produced and the refinery is yet to come up.

Stocks of the Anil group went up as follows: Adlabs Films went from Rs 407 on March 15, 2007 to Rs 939 on November 29, a rise of 131 per cent, Reliance Capital from Rs 598 to Rs 2,278, a rise of 281 per cent, Reliance Communications from Rs 391 to Rs 665, a rise of 70 per cent, Reliance Energy from Rs 462 to Rs 1,664, a rise of 260 per cent, even though the company has not added a single megawatt of new power during the year, and RNRL from Rs 22 to Rs 153, a rise of 597 per cent on no ostensible development.

Where and how stock prices move is one of the huge mysteries of the stock market and the mystery is compounded because the way that the stocks have risen is reminiscent of the way stocks went up during 2002 and ended up in what is labelled as the Ketan Parekh scam. He had a few favourites stocks and they were even called the K-10 stocks. It was later discovered that Ketan Parekh was operating through participatory notes (PNotes) and stocks were pushed up through circular trading.

Analysts taken by surprise: Till the R stocks, as they are referred to, reached these heady heights, not a single analyst or brokerage house had given these stocks the targets that were achieved in reality. The question being asked is whether all analysts were wrong. Does research really have any value? Or is there something more to the R stocks going up?

For instance, in June, Merrill Lynch had given a target of Rs 1,807 for Reliance, a rise of eight per cent; Khandwala Securities a target price of Rs 2,120, or a rise of 27 per cent, when the price was ruling at Rs 1,674; Kotak Institution had given it a negative of 10 per cent, at Rs 1,525, when the stock price was Rs 1,698.

That all analysts can go wrong is not unheard off in these days of the subprime crisis. Not a single analyst or brokerage house, for instance, predicted such a crisis which had been making for a year. But, as some brokers say, the Ambanis are a different league altogether. If some C grade promoter’s stocks had gone up at such a scorching pace, they would have been caught for price manipulation. But in the case of the Ambanis it is very cleverly called "rerating" of stocks.

Financial institutions don’t book profits: Most of the trading in the Reliance stocks seem to have been done in the futures and options sector which is like a casino. According to brokers who track the market, with all this trading, there has been no change in the shareholding pattern of these companies. It should have been reflected in the shareholding pattern in the June and September quarters but there is no change.

What is interesting in this whole ramping up of the R shares is that the institutions have been hanging on to the scrip instead of booking profits.

Ketan Parekh scam: It is an uncanny coincidence that UTI did just this during the Ketan Parekh scam. When K10 stocks like Himachal Futuristic went up without any reason and with such exuberance, the institutions did not sell but clung on to them.

The result was that when the scam blew up, UTI was left with worthless pieces of paper of stocks like DSQ, Pentamedia, Global Tele etc.

In the case of R stocks, too, financial institutions do not seem to be booking profits and continue, according to information provided to the stock exchange, to hold the same number of shares.

Olga Tellis
Via Asian Age