Monday, 27 October 2008

RIL stock skids 66% in the downturn

From August '07 to January '08 when stocks rallied from strength to strength, Reliance Industries was the catalyst for the the 7,000-point sensex rally. But, ever since the fall started since January 10, it is again Reliance, according to data, may be the chief reason for bringing the benchmark down in the quicker and sharper downturn.

The world may have changed for Indian stocks and Sensex may have come down substantially but the the most influential stock in the 30-share bellwether index -Reliance still remains the match-maker. While the stock price has corrected by Rs 2,000 a share, Sensex came down by 12,500 points.

Extrapolating this, it is fair to say that for every one rupee shed by Reliance stock, Sensex has fallen by close to 6 points, according to analysts. When sensex went up by 49% in just 7 months (August to January) Reliance, which carried a weightage of 15.3% in early January, witnessed its stock price outperform the benchmark index and raised by 73%.

While the DLF stock went up by over 90% in the same period, the real estate company carried a meagre sensex weightage of 2%.

The impact of Reliance's rise is significant on Sensex as blue-chip firms SBI, ITC, ADAG-controlled Reliance Comm and ONGC cumulatively held a weightage of close to Reliance"s 15% in January. "The Reliance stock is pivotal to sensex's fortunes. There has hardly been any day, when Reliance has fallen and has not pulled down sensex alongwith it. Nobody remains unaffected when the big boy falls," said a large broker at Bombay Stock Exchange.

During the downturn, the Reliance stock has fallen by 66%, again outperforming Sensex which has shed 59% in the same period.

Although Sensex constituents such as RCom, Larsen & Toubro and DLF have fallen by 75-80% in the same period, which is sharper than Reliance, the three stocks have a cumulative weightage of just under 10% (which is less than Reliance's 12% influence), data shows.

One half of all Sensex companies taken together i.e around 15 stocks have just the same influence that a single scrip has: Reliance. DLF may have corrected by over 80% but Reliance's freefloat market cap is 14 times more than it. "Sensex is calculated under free-float market capitalisation method.

This means that the influence of closely-held companies such as DLF on the index is preventing even if their stock price fall is much sharper," the research head of a foreign brokerage explained.

Source: EconomicTimes

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