RELIANCE BRAND EQUITY –SHORTCIRCUITED!

Feb 12, 2008 10:37 am
RELIANCE BRAND EQUITY –SHORTCIRCUITED!

By Ruma Dubey

A visitor to our website, obviously in a frustrated mood yesterday, he sent these peals of wisdom –

“Dil ke armaan mandi me beh gaye, Hum scrip Average kar-kar ke mar gaye;

Shayad aakhri fall ho yeh bazar me, Har correction yeh soch kar hum jeeh gaye!”

Extremely poignant and poetic, with a tongue-in-cheek look at the current state of the markets and the investors, this is indeed the bitter scenario today. The IPO of Reliance Power is now considered a jinx for the markets. The primary markets and the secondary markets in tow have been on the decline ever since the IPO closed. And yesterday after getting listed and then getting pounded badly on the BSE and NSE, it was quoted at Rs.380, much below its IPO price of Rs.450 and even lower than the retail discounted price of Rs.430 per share.

This was completely unexpected, this total panic selling on the counters of Reliance Power on listing itself left everyone bewildered. For the entire day, it seemed as though fear stalked Dalal Street and selling continued incessantly.

The biggest victim of this drubbing on the counters of Reliance Power has been the brand equity of the entire group – the name tag of “Reliance”. Be it Mukesh or Anil Ambani, the way people have been hurt, because of having invested in the IPO, mainly on the basis of the name tag of “Reliance” is something that they will not forget in a hurry. This has happened for the first time in the history of Reliance that a Reliance IPO, on the very first day of trading was ruling so much below the IPO price. The fact that this happened, shook the entire confidence of the markets.

All the Reliance stocks, of both the brothers were down in the dumps. Reliance Industries was down at Rs.2275, RNRL at Rs.124, RPL at Rs.152, Reliance Capital at Rs.1615, Reliance Communication at Rs.590, Reliance Energy at Rs.1580 and RIIL at Rs.1632. The newly listed Reliance Power ended the day at Rs.372, as against the IPO price of Rs.450. Both the brothers had become one homogenous face; all that mattered was that they just wanted to vent out their frustration on the entire tag of “Reliance”.

Reliance Power, a few days ago boasted of having the largest number of shareholders, as prior to its listing the count of total shareholders was 41.85 lakh shareholders, surely that number would undergo a drastic change now. Going by the trend shown today, it seems sure that by the end of this fiscal, till 31^st March 2007, the total number of shareholders would be less than 30 lakh.

Reliance Power is a classic case of overpricing. There was a sense of madness when the IPO opened for subscription and everyone, right from the dabbawallah to the housewife in the far flung suburbs, all rushed in to invest. Kudos to the PR agency of ADAG and surely, the ad agency of the IPO needs to be congratulated too, for having done such a fantastic job of promoting Anil Ambani and the “Reliance” tag! People invested without even casting a glance at the fundamentals of the issue, pricing did not matter at that time. There was so much hype that all felt they will make a bounty if they invested. Now they know!

What is pathetic is that the retail investors got to know of this the hard way. The drubbing today has made them realize that the market is always right and just a name or a person cannot get away with anything. Unfortunately, they learnt this lesson by paying a price.

For the overpricing, the blame lies fair and square on the shoulders of the BRLMs to the issue – Kotak Mahindra Capital, UBS Securities, ABN Amro, Deutsche Bank, Enam Securities, ICICI Securities, JM Financial and JP Morgan. All such big names in the financial sector of India, it is indeed sad that they altogether indulged in such overpricing, at the cost of the investors. These are supposed to be the most learned people when it comes to IPOs and for them to have not judged the markets and the effect of their pricing on the markets is indeed deplorable. It makes make actually wonder what exactly are these BRLMs up to?

The blame for this IPO also lies with the grey market to a very large extent. The way in which the premiums were quoted on the grey market is what led people to think that they will easily get an immediate return on their investment. Now they hopefully know better!

There is news that it is the QIBs who are the maximum sellers on the Reliance Power counter. How can they do that? These QIBs were the ones who rushed to get as many shares as they could and that too at the maximum rate of Rs.450. So now that the tides have turned and the secondary markets have also changed their direction, the QIBs are getting out like rats from a sinking ship. Doesn’t this now mean that, in the future, if QIBs clammer to get shares in any particular IPO, it is best to then stay away as they could be the reason for the stock crashing on listing? Infact on Dalal Street today, QIBs has become a bad word!

This unexpected turn of Reliance Power now casts a shadow over the IPO of the Reliance Infratel, for which Anil Ambani has already filed in the Draft red Herring Prospectus with SEBI. He had probably hoped to cash in further on the brand equity. It seems there were almost five to six more IPOs planned by both the brothers – Reliance Fresh and Reliance Entertainment being in the forefront. After this, maybe the brothers also need to get a reality check done on their expectations and public perception of their brand equity.