The bellwether hustle

Thousand-point pole vaults on the benchmark index of the Indian markets are no longer reasons to release balloons on Dalal Street or clink coffee mugs in broadcasting studios. That’s because the Sensex doesn’t seem in any mood to pause for breath, and 1000-point milestones are being crossed in a matter of days. Consider: On September 19, the BSE index had settled at 16,000. Exactly a week later it had gate-crashed into the 17,000 zone. Prior to that, the move from 15,000 to 16,000 had taken almost two and a half months. The broader markets of mid-cap stocks, too, have moved in tandem.

Riding on this spectacular surge are a bunch of stocks, but none has captured investor imagination the way the Reliance pack has (see Leading the Charge). Driving the Sensex are Reliance Industries, the flagship of Mukesh Ambani, and Reliance Energy (REL) and Reliance Capital (RCL), two companies of Anil Ambani that have mega-plans for growth (the two brothers had agreed to split the empire between themselves two years ago). As the Sensex coasted from 15,000 to 17,000, a rise of 13.3 per cent, the Ambani stocks have comfortably outperformed the 30-share index. At 17,000, RIL was up a little over 34 per cent (since early July, when the Sensex was at 15K), RCL had taken off by close to 38 per cent, and REL had doubled in spectacular fashion.

So, what is it that’s making these Ambani companies tick at such a furious rate? Plenty, actually. Let’s start with Anil Ambani’s plan of raising $2-2.5 billion from the primary markets to fund projects in the power sector. He will do this via a company called Reliance Power, which will implement these projects. This initial public offer (IPO) will be the largest in recent times. Reliance Power reportedly has plans to implement projects worth Rs 70,000 crore.

The younger Ambani also has plenty going for him at RCL, the financial services giant. The company is building a massive pan-India network and, according to analysts tracking the company, is aiming for 10,000 touch points in retail (versus 4,000 now), and a presence in 5,000 locations (against 700 currently) in a year. At a recent RCL shareholders’ meeting, Ambani said: “Our net worth stands at over Rs 5,297 crore as on March 31, 2007, placing us among the top three private sector companies in the financial services sector, after ICICI Bank and HDFC.”

Of course, big brother has his own big blueprints. RIL recently got a huge leg-up when it made an oil discovery on the east coast. What’s exciting investors is the large portfolio of highly-prospective exploratory blocks that RIL has created. UBS, for instance, estimates that exploration and production accounts for 38 per cent of the value in RIL, and puts a figure of $33 billion, or Rs 1,091 per share, on the E&P portfolio.

If there’s some uncertainty around RIL, it has to do with its retail game plan. Local vendors have been up in arms in Uttar Pradesh, and in West Bengal, Reliance Retail (a RIL subsidiary) had little option but to sack 400 employees. Yet, it’s the sheer upside in the E&P business that’s overriding setbacks in the retail venture. Interestingly, even the lesser-known companies have joined the party. The market cap of Mukesh Ambani’s Reliance Industrial Infrastructure Ltd (RIIL) has increased almost three-fold to Rs 1,910 crore in less than three months. Likewise, Anil Ambani’s Reliance Natural Resources Ltd (RNRL) is quoting close to Rs 100, up from Rs 37.95 on July 6. For investors, two Ambani conglomerates are proving to be better than one.