It was a rare occurrence in the markets this week, price of Reliance shares went up above 10% following the announcement in their AGM that Saudi Aramco is taking 20% stake in the company & the money that will get raised, 1.15 lakh crores will be used to clear debt.
Mukesh also announced that his company will be debt free by 2021 March. Looking for separate listing for Jio and Retail businesses by 2024. All of these positives took the stock price up.
This happens when the whole market,, the SENSEX takes a plunge of 1.66%. Something very ridiculous, Reliance the top heavy weight in the index and its stock price goes up more than 10% and yet SENSEX closes down 1.66%. This indicates the weakness that all other stocks had for the day and Reliance stayed positive.
Is it good news?
No, its not. In fact it is bad news. There were thoughts going around in the social media circles, ‘when the whole world is pessimistic, how come this man is so optimistic. Building dreams’ The very reason Reliance spoke about debt shows there is some concerns in the way they are operating. Current net debt of Reliance is 2.80 lakhs crores, almost 50% of the company’s market cap.
Already fear news is doing circles that, if Reliance defaults, it will be a bigger blow to the economy. This company has been borrowing heavily to pump up their dreams of killing every other business in India and they play their dictatorship on the economy. This dream will not come true.
They have had positive experience in Petrochemicals and refining businesses, where they ruled the world. Now, it is time for them to pack off and probably getting to that stage through the retail exposures. Bringing in news of a strategic investor at a higher price and jacking up stock price.
There was similar kind of effort made in 2008 by sending the share prices higher without reason and due to that mis demeanour Reliance stock languished in the markets without any growth for more than 7 years. Again the management is resorting to similar efforts.
Fund managers conviction on this stock is very low. In spite of being the biggest stock in our market, not all schemes of Mutual Funds hold this stock. Those who are holding are due to herd mentality of just carrying what others have.
We already have big corporates failing because of greed, Reliance is a different kind of animal to tackle.