Posted by: John Elliott | February 11, 2008

Market realism hits Reliance and Emaar

India’s stock market is coming down to earth and, along with it, the dreams of companies that planned big market flotations to raise funds for projects that are yet to happen. Emaar MGF Land, a real estate joint venture 42% owned by Emaar of Dubai, decided on February 8 to pull its float, which had originally been expected to raise nearly $2 billion, because of “adverse” market conditions. A day earlier, Wockhardt Hospitals, a leading healthcare company, pulled a smaller float.

The trend was underlined this morning when Reliance Power, which raised $3 billion last month in the country’s biggest ever initial public offering (IPO), listed on the markets. During the day, it dropped as low as 21% below the Rs450 issue price and closed 17.2% down at Rs372.50. That was a marked reversal of analysts’ talk a short time ago of it hitting Rs900 or at least Rs550-600.

Reliance’s debut helped to pull shares overall down by 4.78% to the lowest level in nearly three weeks. The Bombay Stock Exchange’s key 30-share Sensex fell to 16,630.91, its lowest close since January 22, and 21.6% below its record 21,206.77 on January 10.
Reliance – which is part of Anil Dhirubhai Ambani Group (ADAG) and is controlled by Anil Ambani, one of India’s richest businessmen – mobilized bids totaling an astronomic $180 billion last month for its IPO, even though it has yet to produce a revenue stream. The future of the company – and the stock – depends on Ambani’s ability to turn plans for 13 power projects totalling 28,200MW into reality.

The company drained so much money out of the stock market last month that it helped to trigger the slide at a time when the market was being buffeted by downward trends internationally. So the irony is that Reliance’s own poor performance today was triggered by its almost unreal success last month.

The link between the Reliance and Emaar flotations is that both are built on dreams for the future. Just as Reliance had to admit in its prospectus that “we cannot assure you that our power projects will commence operations as expected”, so Emaar’s prospectus admitted that “most of our projects are in the preliminary stages of planning and require approvals or permits.” The prospectus added that 83% of the land required was still zoned as agricultural – a problem that will also hit Reliance’s projects.

Anyone who knows anything about industrial and infrastructure development in India knows that substantial resistance is building up against rezoning agricultural land, and the country has an appalling history on planned power projects. So it is scarcely surprising that both companies have been hit now in the current international market gloom.

India’s fundamentals are still strong, even though economic growth forecasts are down below 9%. Investors are looking for comfort to the Budget that Palaniappan Chidambaram, the finance minister, will deliver on February 28. When Reliance hit its high spot last month, he said that “investors are investing in the future of India.” He was right of course, though they are now more choosy than they were a month ago.

And, as I wrote in my last post on this subject, many market professionals seem almost relieved the Sensex has fallen from the “absurd overvaluations” of its peak and that dreams are now being questioned.


  1. Yes! This is good for the original buyer across the world. builders like emaarmgf which are investing huge investment in indian real estate market..

    so its good news for the original buyers.

  2. This post really mean worth for those people who are looking for invest their money in indian real estate market..
    But i think if you are looking for the emaarmgf property who can expect good return in near future..
    so dont wry just wait for the right time..

    pawan sharma
    property consultant

  3. This crash was long impending but reliance and especially anil only added fuel to fire. i dont think anybody is a fool. when it first listed it bombed and it never touched its price of 450 after that till date. even after a bonus share being given. this shows how people cash in on things when the moment is ripe.
    but they do not understand what really matters is how truthful u have been, how much greed is required and how much is pure lust. Anil was lusty and i think at a point the entire stock market was running after it when the reality is that it was going overboard with it. 🙂
    All the best anil u didnt prove urself to be a great leader but did show how far lust takes u. U cashed in on the right time. Salutes to ya and salutes to the people who could invest even after looking at the pprospectus that nothing is present to be worthy of valuations apart for some projects to be bundled up in the future.

  4. as much as i would like not to support the context of this particular article, being an Indian, i am a hard believer that the article is speaking the truth in its best form. Its only logical, now that Anil is offering bonus shares after a week of his launch of the ipo. so much to the brand and so much to his leadership. he just went overboard with this idea. he had reliance energy but he was too greedy.

  5. This stock market crash was more than expected unlike the US subprime mess. Sensex and Nifty (the two benchmark indices)were in full throttle last year so much so that people made fortunes out of run-of-the-mill IPOs. I guess, investors read too much, too early into the Indian growth story. As a result, this frenzy had to end. Quite unfortunately, this time Reliance was culled out for punishment. Despite all this recent mayhem, nonetheless, Indian markets would continue to be an attractive destination for the long-term.

  6. This is the first time that investors have lost money on day one of the listing of a Reliance company. Dhirubai Ambani’s sincere efforts to woo and reward shareholders for over two decades drew investors to this IPO. The damage done to the image of Reliance, particularly of the ADAG Group, will take a lot to be undone. It seems Anil Ambani was carried away by greed too while grossly overpricing the issue in a booming market.

    When the leader is hit, others just collapse.

    The fall in the sensex, dramatic and savage as it has been, has perhaps opened great opportunities for real investors to pick up shares at very attractive prices. But the herd mentality will dominate as always, and most will enter the market again only once it moves up substantially and the ‘sentiment’ turns positive! Best of luck!

  7. Yes! This is good. Now the price has come down to original price. Unless the company have some fixed output(even a plan will do) then it will be better to price higher. I wonder how many, and what kind of big institutions have invested in this hydro project. It will atleast take 5 years to bear some fruits.

  8. Again a nice way to keep us and yourselves entertained .. i must admit the title of the blog Riding the Elephant seems to get me thinking always of why the chinese blog is named Chasing the Dragon .. can we read more into these words which form the titles of blogs given to growing powers or is it just that the chinese blog refers to inhaling of smoke from heated morphine, heroin or opium and the indian one just refers to the joy one gets when Riding a Elephant 🙂


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