Reliance tussle may drag down markets

Dalal Street displayed marked strength for the better part of the last week despite the controversy over the 8216;ownership issues8217; of...

Dalal Street displayed marked strength for the better part of the last week despite the controversy over the 8216;ownership issues8217; of the high-profile Reliance group. But the situation could take a turn for the worse this week as the tussle is not showing any sign of ending.

Market sources think the ownership issue at India8217;s top corporate house will continue to influence trading on the bourses in the coming days.

The market is agog with reports that foreign institutional investors FIIs, which control 22.85 per cent stake in Reliance Industries, may look at the Reliance issue and corporate governance norms closely. The big question is: Will the FIIs sell?

8220;I don8217;t think there are any corporate governance issues here. Actually, it is very hard at this point to know the exact situation and it is equally hard to predict the future,8221; said Sanjiv Prakash, CEO, HSBC Mutual Fund.

Adds S.K. Mitra, MD, Birla Sunlife MF, 8220;I don8217;t know if they FIIs are selling or not, but market had run up a bit and someone is profit booking at the moment.8221;

After displaying weakness earlier in the week, Reliance group stocks declined sharply after six directors of Reliance Energy, which is controlled by Anil Ambani, resigned simultaneously on November 25. The market capitalisation of group shares has fallen by nearly Rs 8,000 crore in the last one week.

The Sensex ended the week with a gain of 73.32 points at 6,035.03.

Story continues below this ad

The market has been apprehensive on account of the Reliance group ownership issue and its consequent impact on the functioning of the companies. What shall small investors do? 8220;They have to be cautious. Whatever news comes in, take it with a pinch of salt,8217;8217; said Prakash of HSBC MF.

The inflow of foreign funds can neutralise the Reliance effect and give a strong direction to the market. Foreign fund inflows have topped 6.82 billion in 2004 so far, their highest-ever in a calendar year.

FIIs put in Rs 1,188.40 crore in the first three sessions of last week. The cumulative FII inflow for November has reached Rs 5,713 crore 1.24 billion.

Foreign funds are likely to continue pouring in the Indian markets on the back of a compelling growth story and the dollar weakness.

Story continues below this ad

Besides the Reliance issue, there are other concerns. International oil prices may also influence the market sentiment. Inflation is still above 7 per cent.

Moreover, the railway freight hike will add to the woes of many sectors like cement and steel, pushing up prices further.