RPL: Part of a larger plot? - Views on News from Equitymaster

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RPL: Part of a larger plot?

Jun 26, 2001

The Reliance Petroleum (RPL) scrip has fallen by 10% since the official announcement of sponsorship of the global depository receipts (GDRs) offering on May 18. During the last one month the BSE sensitive index has declined by 7.5%. The company has stated its intention to offer shares in the international markets to strategic or financial investors. As per the offering, the shareholders of RPL will have the opportunity to exit / dilute their holding in favour of GDR investors. However, the decline in domestic prices could impact the GDR offer price enabling the foreign investors to enter at attractive levels.

The large international financial investors could have presence in the domestic markets as foreign institutional investors (FIIs). In the current environment, with retail investors on the sidelines, momentum investors being squeezed out and mutual funds being net sellers the FIIs could be enjoying an influential grip on the market. Consequently, they could use their weight to influence prices on the domestic bourses enabling their parents to enter stocks at lower prices. Is this the case for RPL?

Nevertheless, the stock performance also seems to be in line with the performance of the sector. Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and Indian Oil (IOC) have declined by 10%, 9% and 2.5% respectively, during the same period. Consequently, RPL's decline may not be due to any company centric development. Further, the sector is facing a slowdown in consonance with that witnessed by the industry. Crude throughput for the month of April '01 declined by 1.4% YoY. This could have impacted the fortune of petroleum stocks on the bourses.

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