Analysts are anxious to see whether the equity market would cheer up the peace pact between the Ambani brothers on Monday morning. Since the May 7 Supreme Court verdict on the RIL-RNRL dispute over KG-D6 gas pricing, market cap of ADAG group companies fell sharply, while RIL?s market cap saw a marginal dip at Friday?s closing price.
The combined market cap of ADAG companies Reliance Power, RNRL and Reliance Infrastructure fell 12.6% from May 6 to 21, while that of RIL, whose market cap is about three times that of the ADAG companies, declined 1.2%. Conventionally, whenever the two brothers have fought, equity markets have roiled. Market capitalisation gain for both the groups remained mutually exclusive ever since the gas pricing dispute between RIL-RNRL broke out in 2006.
But now, with the non-compete pact coming to an end, and brothers taking steps towards more peaceful coexistence, there are mixed reactions as to whether equity markets would welcome the peace pact on Monday morning.
?Prima facie the news looks very good and can negate the share price correction that we have seen in the last few months. It is a very positive development as far as corporate India and market sentiments are concerned,? says Ashok Jainani, head of research-market strategy, ? Khandwala Securities.
Reliance Industries has a $5billion cash accrual every year and they can easily take up capital guzzling projects worth $15-20 billion every year.
Arup Misra, analyst at UK-headquartered elara capital says ?prima facie, it will hit the margins of both the group companies, more so in businesses where margins are already lower (from more competition)?. He adds that this will ultimately benefit customers and not necessarily shareholders. Another mutual fund manager who didn?t want to be named as he can?t comment on individual stocks said the development will be negative for Reliance Industries in the long run as Anil Ambani might get into refinery and petroleum business, which he has co-managed with his brother for a long time. Also with fewer large players in this business (and Reliance having major market share), analysts feel stronger players like Reliance could lose in the longer term on the entry of another new big player.
Currently, the market cap of RIL is thrice that of ADAG. In the past the dispute between two brothers have done more damage to ADAG market cap – be it over pricing dispute, or in Reliance Ind seeking first option to buy shares in Reliance Communications (RComm) when merger talks were on between RCoM and MTN. But now, some expect the peace pact to help. ?Amongst, various Reliance stocks, Reliance Power will be one which will be a clear beneficiary. Reliance Power should do well tomorrow? Ambareesh Baliga, vice president, Karvy Stock Broking says. He adds taht there should be further consolidation (of market shares) in specific sectors they are operating in.
