In the volatile business of the stock market, price and value are two things locked in an eternal embrace of vague proportions. Philosophical meanderings apart, the phenomenal success of the Initial Public Offer (IPO) of shares by Reliance Power throws up more questions than answers. The IPO marks the arrival of Anil Ambani as a leviathan in the market in a sector that is arguably a key infrastructure industry as India emerges as the world’s hottest growing economy after China. With the equivalent of the intended amount of around Rs 11,700 crore raised within minutes of the IPO opening for subscription, Mr Ambani scored as a winner in the global game of wealth creation and edged close to the top end of the global rich list. With wide speculation that the share being offered in a price band of Rs 405-450 will trade close to Rs 1,000 on listing, the 10 per cent stake in the power generation company being offered to the public will catapult it and its chief to new heights in the stock market. Even responsible fund managers who manage investments for reputed institutions are optimistic on the issue, betting on what one would call the ‘long-term India story’.
However, all that must be accompanied by some sobering thoughts. For one, the issue met with controversy on the assets underlying the company. While Reliance Power is betting on 13 projects under execution, in terms of what it has done already, the assets and income flows are small compared with the overall valuation of the company. If the stock lists at a price of Rs 1,000 as many expect it to be, the valuation of Reliance Power, at more than Rs 200,000 crore, will probably be ahead of realty major DLF, neck and neck with the National Thermal Power Corporation (NTPC) and within striking distance of the old oil behemoth, ONGC. Is that justified for a toddler of a company that is yet to show its wares? To this is linked the philosophical issue of pricing future performance of a stock.
A lot of the hype in the pricing is a hangover of the faith reposed in the late Dhirubhai Ambani by investors, transferred through the Reliance brandname to his two estranged sons. If the enduring image of Indian shareholder culture of the 1980s was that of a smiling Dhirubhai addressing a mass of stockholders at Mumbai’s Brabourne Stadium, the lingering image of the current decade would be of his son Anil on a run wearing his shades a few hours ahead of the Reliance Power IPO. We do not quite know if his shades were rosy, but it is certainly the colour of the glasses worn by those who have put their money where Mr Ambani’s mouth is. Now, he must walk his talk to match his marathon run that symbolises both the projects he is executing and the speed and style with which the controversial share issue has been marketed. Or else, his manifesto of growth might become a footnote in the annals of casino capitalism.