Reliance de-merger plans keep the markets at record levels

The morning after the announcement of the much-awaited Reliance de-merger details was celebration time for the markets and the Sensex went past the 7800 mark for the second time in two days. Helped by strong gains in Reliance Industries, the indices opened the day with a large positive gap.

Lack of buying support and weakness in select frontline stocks pulled down the indices from their highs and the markets traded within a band till early afternoon. Weakness in technology and banking stocks led to a sharp decline in the indices and they slipped into the red later in the afternoon.

Strong buying in engineering and steel stocks helped the markets to recover soon after. The recovery lasted till the close of day and the indices managed to close near the day's highs.

Sensex closed at 7797, a gain of 40 points, and the Nifty at 2368, a gain of 11 points. Nifty August futures discount to the spot index narrowed to 8 points from yesterday's 14 points.

L&T, BHEL and VSNL were among the major gainers among Nifty stocks while BPCL, Infosys and ICICI Bank were the major losers.

US markets closed on a flat note yesterday as the weak sentiment from poor corporate results were balanced by the decline in crude prices. The Dow Jones index closed with marginal gains while S&P 500 and NASDAQ closed the day almost unchanged.

After surging to a record high of $62.5 per barrel yesterday, crude futures lost close to 2 per cent and closed at $60.86 on the NYMEX.

Indian ADR's generally had a good day yesterday with the technology stocks leading the way. Infosys closed with gains of 3 per cent while Wipro and Satyam also closed in the positive. ICICI Bank, HDFC Bank, Dr Reddy's and MTNL were the other gainers. VSNL was the biggest loser, closing over 6 per cent lower. Tata Motors lost close to 3 per cent.

Though Reliance Industries management did not give the details of the de-merger at yesterday's AGM and left it to a team of financial and legal advisors, Anil Ambani gave the details the world wanted to know at a press meet later in the day.

According to Anil Ambani, Reliance Industries shareholders would get five shares of Reliance Capital and seven shares of Reliance Energy for every 100 shares held by them.

Anil Ambani would also form two holding companies — Reliance Communication Ventures and Global Fuel Management. The former would be the holding company for all telecom ventures of the Anil Ambani group including Reliance Infocomm; the latter would hold contracts with Reliance Industries for supply of natural gas. Reliance Industries shareholders would get one share in each of these holding companies for every share held by them.

The de-merger plan led to a rebound in Reliance Industries stock price today, which had lost over 3 per cent yesterday. The company has informed that its board would meet tomorrow to discuss the de-merger plan. Reliance Capital gained almost 7 per cent.

Tata Steel surged over 4 per cent after the company said production was higher by 18 per cent during the month of July. The company was able to increase the output after the commissioning of a new 1-million tonne plant recently. The company had reported lower production and sales volumes during the first quarter ended June 2005.

Tata Steel has placed the order for a new 2.5-million tonne blast furnace with a consortium led by engineering major L&T. Tata Steel had also ordered a 2-million tonne capacity sinter plant from L&T recently.

The strength in Tata Steel led to a surge in other steel and metal stocks as well. SAIL closed the day with gains of over 3 per cent while Nalco closed over 2 per cent higher.

The new orders attracted significant buying interest in the L&T counter, which surged by over 5 per cent to a new lifetime high. The stock had gained close to 4 per cent yesterday as well.

Other engineering stocks like BHEL, ABB and Siemens also saw substantial buying interest. BHEL closed the day with gains of over 5 per cent while ABB closed 2 per cent higher.

The substantial decline in its ADR prices yesterday did not dampen the buying interest in VSNL. The stock surged over 5 per cent.