May drive realty prices down

Market participants were confident that the Supreme Court verdict will usher in a healthy corporate governance practice in India. Some were of the opinion that it would be challenging for Sahara group on its expansion plans.

Head of Research, Unicon Financial Intermediaries Madhumita Ghosh said: “Seeing a company like Sahara which is considered to have a heavy lobbying clout being taken to task, other erring companies too would get a signal to fall in line which would be positive for the markets overall from a corporate governance point of view.

“It would also give more reliance to the FIIs to invest in our country as usually such matters are ignored and not taken seriously.”

Kishore Oswal, Head CNI Research, believed there could be an impact on the realty markets and prices. “The Sahara group recently invested in land in various parts of the country and may have to sell it off to meet its repayment obligations. This could perhaps drive realty prices down.”

Oswal added that the judgment is also a “sad comment on the deteriorating law and order situation in financial aspects of our corporates where the role of Supreme Court has been reduced to solving the financial mess of companies.”

Investors to benefit

Commenting from the company and individual investor point of view, Vice-President — Equities Motilal Oswal Securities, Rikesh Parikh said: “The company has a lot of liquidity given their recent acquisitions in the realty and hotel space so repayment obligation would not affect the working of the company.

“Individual investors who had invested in the said fundraising plan would be benefited with one time gain as they would be repaid back at a higher annual interest rate of 15 per cent than offered by banks thanks to the intervention by the apex court.”

“It would be challenging for them to raise such a huge amount of $3 billion so it could lead to a review of their business strategy. The company may scale down the many new businesses it has entered into,” added Strategist & Head of Research, SMC Global Securities Jagannadham Thunuguntla.

Meanwhile, the two listed companies of the Sahara conglomerate were hit. Sahara Housing Finance Corporation closed at Rs 78.70, down 3.32 per cent from its previous close while Sahara One Media and Entertainment after opening at Rs 109.30 slid to the day’s low of Rs 98.30 before recovering to close at Rs 104.85.

(This article was published on August 31, 2012)
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