Reliance Power...load shedding on listing

All the hype and hoopla surrounding the launch of Reliance Power vanished in a flash, as the stock got hammered right from the moment it listed, on Feb. 11. It just could not cope with the immense selling pressure after it managed to open at Rs525 on NSE. The stock constantly lost ground and hit a low of Rs355. Finally, the stock managed to recoup towards the end to close at Rs372, translating into a discount of 17% on its debut. The stock managed to regain some lost ground by the end of the week and closed at Rs385.70, in line with the improvement in the market sentiment.

Reliance Power was expected to list around Rs500-550 as per the unofficial rates in the grey market. This itself was substantially down from the initial premium of around Rs900 when the company launched the IPO. The premium shrunk gradually due to weak market sentiment and after Wockhardt Hospitals and Emaar MGF withdrew their public issues. Still, nobody would have imagined that Reliance Power would get pounded so badly on debut.

A lot of investors suffered big losses by betting on the Ambani/Reliance goodwill and brand equity. Even such big names as Centurion Bank of Punjab, Allahabad Bank and ABN Amro booked losses on the second day of the listing after getting substantial number of shares. The worst hit were those who applied by borrowing at an interest rate of 18-20%. Most of them are likely to have lost money.

The invincible reputation of the Reliance group has taken a severe beating post the dismal listing of Reliance Power and it would take some doing on the part of Anil Ambani to win back investors' confidence.

Another ripple effect of the disappointing Reliance Power listing will be felt in the primary market. The IPO market is likely to remain subdued for a while as scary investors will view every issue with a lot of apprehensions now. However, the management of public sector Rural Electrification Corp. and Oil India remain confident that their issues will manage to clear the litmus test despite the Reliance Power fiasco.