Sharp rise in ADAG stocks baffles Street

A sharp rise in Reliance-Anil Dhirubhai Ambani Group (ADAG) stock prices baffled market players on Tuesday.

While the benchmark Sensex of the Bombay Stock Exchange shed over 0.3 per cent, shares of Anil Ambani-controlled companies rose by between 3 and 37 per cent.

A similar rise in these stocks was witnessed in June, after brothers Mukesh and Anil Ambani scrapped a 2005 non-compete agreement between them. That rally soon fizzled out after stocks came under selling pressure and there was talk of a stake sale by ADAG.

According to analysts and brokers, operator activity in some of these counters was high on Tuesday. However, there was no news important enough to warrant such a flurry of activity.

The only two major developments recently were plans by Reliance Mediaworks to raise up to Rs 500 crore (Rs 5 billion) through private placement of shares and Reliance Capital's plan to launch an initial public offering for its insurance arm in 2010-11.

"The rise in some ADAG stocks has been sporadic. I do not think it is sustainable," said independent equity advisor S P Tulsian, who closely tracks the group.

One Mumbai-based broker, who did not wish to be named, said: "ADAG stocks were neglected during the entire rally due to sibling rivalry. The portfolios of mutual funds and foreign institutional investors, who held them in large quantities, were bleeding. While some of them managed to sell, a few are trying to create demand on the counter. The market is flooded daily with rumours that Anil Ambani is in the process of raising money by selling assets and restructuring his business strategies."

ADAG's spokesperson refused to comment on the subject. "As a policy, we do not comment on share price movements," he said.

Shares of Reliance Mediaworks were the top market-wide gainer, barring two penny stocks. They rose nearly 37 per cent, or Rs 70.9, to close at Rs 292.9. The scrip touched an intraday high of Rs 299.4 after opening at the day's low of Rs 212.7. The company was listed after a merger with Adlabs Ltd a few years ago.

"It is not clear why Reliance Mediaworks rose so sharply," said Kishor Ostwal, managing director of Mumbai-based CNI Research.

Shares of Reliance Natural Resources Ltd rose 5.8 per cent on Tuesday to close at Rs 41.8. The company's fundamentals have been under the scanner after it lost a major court battle with Reliance Industries Ltd this year.

Deven Choksey, managing director of K R Choksey & Securities, feels there is potential in Reliance Capital and Reliance Infrastructure. "The valuations of Reliance Capital and Reliance Infrastructure were neglected, but these companies have good business models and potential," he said.

Reliance Communications was the top gainer in the Sensex pack. The stock was up over 3.2 per cent at Rs 177. An attempt by promoters to spin off Reliance Infratel into a venture with GTL Infrastructure fell apart earlier this month, dealing an unexpected blow to Reliance Communications. However, Ambani said there was minority participation interest and the company expects to become debt free in about three years.

In comparison, the share price of RIL has been a drag on the Sensex for the past few months, despite a slew of positive announcements.