The Hindu Business Line : Some value buying seen in Reliance Power below Rs 400

While the loss suffered by investors in Reliance Power, closed substantially below the offer price on the first of trading, may be negligible to small investors due to lesser allotment, they have suffered a much greater loss because of the entire infrastructure and power sector space losing substantial ground as investors had built positions there, while reposing faith in the India growth story.

But there were also retail investors who bought Reliance Power stocks when it went below Rs 400 on Monday, considering it a good opportunity to get into the stock and hoping that the Ambani magic would work in the future when the stock would seek much higher levels, according to Mr K. Annamalai, former President of Coimbatore Stock Exchange (CSE) and Director of DJS Stock and Shares Ltd.

Speaking to Business Line on Monday, he said that according to the data available with his office here, while about 12,600 Reliance Power shares were sold by the retail investors through his company's terminals in the South, the buying was nearly twice as much - around 30,000 shares.

Most of the retail investors had been allotted 17 shares at a price of Rs 430 (the issue price was Rs 450/share with a Rs 20 discount to retail investors) and selling was witnessed as trading commenced because of weak market conditions. As fewer shares were allotted through the IPO, the loss sustained by the retail investors was also limited

`AMBANI MAGIC'

He said the retail investors latched on to the opportunity to buy the stock at lower levels when the share price dipped below Rs 400. But much of the purchase was in small lots of up to 100 shares.

Explaining the reasons for the contrarian thinking of retail investors when the share price was tanking and the market was in the grip of the bears, Mr Annamalai said the trigger for the purchase was the `Ambani magic' and not because of the fundamentals of `Reliance Power' company. He said the retail investors had faith that Mr Anil Ambani would not let them suffer losses. The expectation was that after a few days, the stock would bounce back and seek higher levels, providing an opportunity for the investors to exit the stock and make some profit.

METHODS QUESTIONED

He said the whole episode also brought into question the role played by the regulator and a section of the media that created so much hype about the issue. He argued that when SEBI had turned down so many smaller issues for not meeting its guidelines, it should have also been strict during the scrutiny of the Reliance Power application that was offered at such a high premium.

The media also should be wary of creating so much hype about public issues since it leads to heavy over subscription and reports on aspects like grey market pricing only whip-up investor frenzy.

The banks also went for liberal lending and many investors had borrowed substantially, hoping to make a killing when the share was listed (they expected it to be at a much higher premium to the offer price), only to fall into a trap.

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