DNA Money India reports that the recent rise in market capitalization of Reliance Group (both Mukesh Ambani and Anil Ambani) stocks has caught the attention of SEBI. SEBI is investigating whether there was a market capitalization race between the two brothers.

I strongly believe that SEBI is right. It’s crystal clear that both the brothers are inflating their stock prices artificially. Otherwise the group stocks like AdLabs, Reliance Natural Resources, Reliance Industrial Infrastructure would never have climbed that much in months. That’s the reason why these stocks lost more than 50% of their market capital in two days (i.e January 21st and 22nd).

I have done a quick research of Reliance stocks namely Reliance Industries, Reliance Capital, Reliance Energy, and Reliance Communications which I’m holding. I have set a fair value for each of these stocks so that I would buy more of those stocks if it reaches that level to average my cost.

The fair value of Reliance Industries is at around Rs. 1600 to Rs. 2000, Reliance Capital at around Rs. 900 to Rs. 1200, Reliance Energy at around Rs. 800 to Rs. 1000, and Reliance Communications at around Rs. 450 to Rs. 500. It doesn’t mean that its overvalued now I just set my own preferred BUY price.

The Securities and Exchange Board of India (SEBI) is checking whether there was a de facto market capitalization race between the brothers and if this was the reason why shares of their companies rose vertically between March 2007 and January 2008.

The regulator is said to be scrutinising its Integrated Market Surveillance System (IMSS) data to check for signs of possible concerted moves to lift share prices of a number of companies belonging to the two groups.

These include Reliance Natural Resources  and Reliance Communications from the Anil Ambani group, and Reliance Industrial Infrastructure and Reliance Industries belonging to the Mukesh Ambani group.

Attempts by DNA Money to contact SEBI chairman Chandrashekhar Bhave for a comment on this was not successful.

SEBI is said to be investigating whether there was a modus operandi to the whole thing. It wants to lay out modalities so that in future small investors are not suckered into rallies that explode on their faces later.

A proposal put out by SEBI earlier on Tuesday to include derivatives under the purview of insider trading regulations is a step towards curbing such incidences in future.

Under the prevailing regulations, an insider is penalized for transactions done only in the cash market and not in the futures & options segment, leaving a huge loophole in insider trading laws.

The proposal, when passed, would go a long way to save small investors, which is the ultimate aim of the regulator SEBI.

At the height of the bull run and ahead of the jumbo public issue of Reliance Power, the Anil firm, the stock of Reliance Natural Resources galloped to Rs. 249.7  on January 9, 2008, which is a 1027% gain over the price of Rs. 22.15 seen in March 2007.

The stock was also included in the futures & options segment on May 14, 2007. Similarly, shares of others Anil-led companies —- Reliance Energy, climbed 454%, Reliance Capital jumped up 400% and AdLabs Films surged 382% between March 2007 and January 2008.

On the Mukesh side, Reliance Industries shot up by 150% to Rs 3,252 from Rs 1,299.4 last March, while Reliance Industrial Infrastructure rocketed 740.6% to Rs 3202.25 in October 2007 from just Rs 380.95 in March 2007.

Value-wise, a 150% rise in the share price of Reliance Industries would amount to a far greater surge in market cap than many of the Anil shares put together. Also, it has tremendous weightage in the SENSEX, so can change sentiment.

Since mid-January, share prices of both the groups have plummeted and large tracts of wealth created wiped out in a flicker.

Source: DNA Money India

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