The Hindu Business Line : Reliance tumbles to pre-election result level

Kolkata, July 7 Many of the stocks that declined on Monday after the Budget proposals were announced managed to recover partially or fully on Tuesday. But some counters failed to recover, indicating serious weakness or uncertainty of earnings growth.

The Budget blues had seen certain stocks slip to the levels prior to a rally that had come after election results on May 16 – including RIL and Sun Pharmaceuticals.

RIL, one among the big losers on Monday, on Tuesday lost another Rs 38.25 or 2.02 per cent. According to analysts, RIL stock’s decline was due to various reasons.

According to BoA Merrill Lynch, the MAT rate cut for RIL means further downward revision in its target price to Rs 1,806 and 4-5 per cent cut in FY10-FY11E EPS. “Uncertainty on whether RIL will get 7-year income-tax holiday under Section 80IB (9) for its gas production continues.”

Merrill Lynch reckoned that RIL’s target price and EPS estimates would be hit by another Rs 275 a share (15 per cent) if it does not get a tax holiday on gas production.

A new provision has been inserted in the Budget to allow a seven-year tax holiday for gas production blocks allotted under NELP VIII (launched in April 2009 and to close in August 2009). This meant that the tax holiday has now become prospective, and whether there would be tax holiday on gas production from blocks allotted under NELP I to VII lacks clarity.

Apart from this and the continuing tussle between RIL and Reliance Natural Resources Ltd over gas supply disputes and the general MAT burden, RIL’s finished products would undergo price revisions as a result of the Budget, said Mr Arun Kejriwal of KRIS. The Supreme Court on Tuesday issued notices to the Government, RIL and RIL and posted the hearing on the matter related to gas supply to July 20.

Another big loser on Budget day was Sun Pharmaceuticals. It had lost Rs 167.95 on Monday. On Tuesday it went up by Rs 13.15, marking a recovery of just 1.16 per cent.

Analysts said the company was undergoing price correction as it recently stumbled on regulatory issues in the US. The pharmaceuticals sector as such did not get any budgetary favour, analysts pointed out.

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