A Reliance spokesperson denied that the company had picked up any stake in IPCL. Industry sources, however, said that a deal had been struck at a price slightly higher than the prevailing market price (IPCL closed on the BSE at Rs 77 on Wednesday). In addition to this, several smaller deals were also reportedly struck. A broker claimed that some deals were struck at prices as high as Rs 125, but this could not be confirmed.

While Reliance dismissed such information as mere "rumours", some brokers said that one of the funds under Foreign & Colonial (F&C), a leading European asset management group which has investments in Indian markets to the tune of Rs 800 crore, had sold IPCL shares to Reliance Industries.

Sun F&C Asset Management, the Indian asset management arm, itself manages about Rs 500 crore worth of investments. It advises the India Performance Fund, an offshore fund, and the F&C-sponsored Indian Investment Company SICAV (Indico). Apart from this it has a domestic equity fund and a debt fund and a Sun F&C Performance Fund (a special scheme under Sun F&C Mutual Fund for investments by India Performance Fund Ltd). It is not clear which of these funds has offloaded its stake. It is possible that the shares were offloaded by the funds which do not come under the management of the domestic entity.

The decision to pick up a stake in IPCL coincides with the government's move to float a tender to offload a part of its stake in IPCL to a strategic investor. Market analysts say that in the event of a foreign bidder picking up a significant stake the competition could hot up for the country's largest private sector firm.

The IPCL stock has been witnessing hectic trading in the past few days. On Tuesday it clocked extremely high volumes of 35.37 lakh shares at both the NSE and BSE, a significant jump from the previous day's turnover of 2.37 lakh shares. On Wednesday, 15 lakh shares were traded on the BSE.

The total government holding in the company is about 64 per cent. FII holdings were to the tune of 15.75 per cent (before the recent sale by F&C group). The domestic institutions own about 8.41 per cent with the public holding another 10.73 per cent.

Despite the recent rise in IPCL prices, the projected acquisition price for any buyer looks reasonable if one were to compare it with the cost of setting up a greenfield project. A 25 per cent stake at the price range of Rs 80-100 per share works out to Rs 540--700 crore. This would value the company at over Rs 2,000 crore. Comparatively, a greenfield venture would require an investment of a minimum of Rs 4,000-5,000 crore.

If the Reliance purchase is confirmed, and if it also succeeds in bagging the company at a government auction, it will essentially be getting low-cost manufacturing facilities at Vadodara and Nagothane, both of them substantially depreciated. Also, with the commissioning of the Gandhar Phase II, Reliance will have a complete monopoly in ethylene cracking.

Moreover, the combined entity will control more than a 60 per cent market share in polyethylene and polyvinyl chloride, both high-volume commodity plastics.