Markets

ADAG stocks get hammered

Palak Shah Mumbai | Updated on January 09, 2018 Published on November 15, 2017

Valuations similar to 2008, but no panic seen in market

Share prices of half a dozen companies in the Anil Ambani group (ADAG) plunged on Wednesday, setting off tremors in the broader market and reviving memories of a string of bad news in 2008.

ADAG companies’ share prices nosedived between 8-10 per cent on Wednesday, against a 0.67 per cent fall in the Nifty and a 0.55 per cent fall in the Sensex.

A sharper fall in the indices was averted, unlike in 2008, only because none of the ADAG group companies is currently part of these indices, market experts said.

Reliance Infrastructure, Reliance Capital, Reliance Power, Reliance Naval and Engineering, Reliance Home Finance and Reliance Nippon LifeAsset Management, which was listed this month, took a beating today. Bad news with regard to Reliance Communications’ debt default hit ADAG stocks.

The 2008 debacle of Reliance Power’s listing had triggered a nearly 4-5 per cent crash in the Sensex and the Nifty. Currently, both the indices are witnessing frothy valuations in terms of price to earnings multiples that were last seen in 2008 around the time of the Reliance Power IPO.

The P/E of the Nifty and the Sensex was over 28 and 27 respectively that year. This time, the P/E for both the indices rose over 26 last month when they touched a life-time high.

Rising crude oil prices too served as a reminder of the similarity between now and 2008.

In fact, small- and mid-cap indices are currently trading at a higher P/E than before the market crashes of 2008 and 2000.

“There are uncanny similarities between the stock market in January-February 2008 and now,” said Sudip Bandyopadhyay, MD, Inditrade Capital.

Even though most market analysts are worried about valuations as they scale the levels last seen during past stock market peaks, there is no panic.

“I was circumspect about the market rally and I’m sure there are similarities or evidence of a 2008-like situation, but it is different now as there is no panic,” said Ramesh Damani, a veteran Dalal Street investor.

“A market correction is happening in an orderly fashion and this may be near the end of a cyclical correction,” he added.

Published on November 15, 2017
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