Markets tank again, Reliance Power disappoints on debut

The fall in the Sensex — which was down 1,000 points at one stage on a chaotic day — was compounded by various factors. “Firstly, it was a strong fear of the US economy heading towards a recession that is prompting FIIs to pull back their money from India. Secondly, the withdrawal of two high profile IPOs last week has given a clear indication of a temporary liquidity crunch being experienced in the market resulting in a broader sell-off. Thirdly, the poor debut of the R Power stock also had a bearing on the overall sentiment in the market,” said Shahina Mukadam, head-equity research, IDBI Capital.

The market witnessed heavy selling pressure across the counters as investors fretted over the dismal debut of Reliance Power and the withdrawal of two IPOs. Weak global cues, too, weighed on the bourses. The Sensex has now lost 4,576 points, or 21.57 per cent, to the current 16630.91, from a record high of 21206.77 on January 10 due to heavy selling by FIIs amid a credit crisis in the US and fears of a US recession. Huge unwinding of positions in the futures and options segment was another key trigger for the fall.

The market turbulence has taken a toll on new share offerings. Realty firm Emaar MGF Land withdrew its initial public offering last Friday, becoming the second Indian company — after Wockhardt Hospitals — in 24 hours to abandon an IPO. “There was a big hype surrounding the IPOs. IPOs were overpriced,” said a BSE broker.

The continuing weakness in global markets added to the woes of Dalal Street. Key indices in Hong Kong, Singapore and South Korea were down by 2.44 per cent to 3.64 per cent. Stock markets in Japan, China, and Taiwan were closed. European markets were also down.

The Sensex has lost 1509 points, or 8.31 per cent in the last four trading sessions. The current setback on the bourses has materialised despite a boost in liquidity in the secondary markets following investors getting back refunds of excess application money in the heavily subscribed Reliance Power IPO. According to analysts, since RPower floated the mega issue, a lot has changed.

“The sentiment has dived further on the back of fresh round of bad news on the US economy. Locally too, things haven’t exactly been great with the Government predicting almost a 1 per cent dip in the GDP for FY08 and inflation crossing the 4 per cent mark. The industrial output numbers, to be released soon, are also likely to be weak. FIIs, after briefly resuming their shopping spree, have started selling again, although gradually. A couple of high-profile IPOs have been withdrawn due to the fragile market conditions. So, the backdrop for Reliance Power’s listing was not ideal,” said an analyst with India Infoline.

Power stocks were battered mercilessly after Reliance Power debuted below the IPO price. The BSE Power index fell 8.61 per cent and underperformed the Sensex. Reliance Energy, which holds 45 per cent in Reliance Power, plunged 22 per cent, Torrent Power by 15.88 per cent, Tata Power 12.26 per cent and CESC 6.60 per cent. Other Anil Ambani group stocks like Reliance Communication (down 10 per cent) and Reliance capital (14 per cent) were also hammered down.

The short-circuit

• Reliance Power lost 17% on first day of listing

• IPOs of Emaar MGF and Wockhardt withdrawn last week due to poor response

• Global markets going down, down

• Indian GDP growth estimate down; inflation crosses 4% again

•Global economy, led by US, faces slowdown