As Anil Ambani comes out to bat this morning, he faces a challenging and thankless task. He can not win this match, he has to grind and save it. For, to win it, Reliance Power would need to list and settle above Rs 900, at least Rs 800.
That seems a tall order, now that the blinkers are off. So, now we come to saving the match. If the stock holds Rs 600, he would have managed that, with some sense of respectability too. At any rate, it has to hold Rs 450-500. Else, the pride of the Ambanis would be hurt. So, what are the odds?
First, the forces working against him. Enemy number one: fundamental valuations. Given the number of years before real revenues begin to kick in, the current value of the stock should be no more than Rs 200-300. That too, since it comes from the Ambani stable; in another promoter's hands this stock could have been worth Rs 100.
Two, playing conditions are cloudy, global and local market sentiment is hardly what it was when the IPO was launched. This has already claimed two scalps in Emaar and Wockhardt and will work against the debuting stock today.
Three, rich individual investors, who have leveraged in the expectation of flipping at Rs 900, are panicking and will rush to offload the stock on listing. Anything below Rs 600, they are losing money. Retail will follow, skewing the technicals on Day One. Remember, the stock debuts in the futures market too, so traders could go short on it to exploit this vulnerability.
What does Anil Ambani have in his arsenal? Considerable resources, for starters. He is a proud man and will pull out all stops to ensure at least a reasonable listing. Yes, to defend the price, a fair amount of stock will need to be absorbed.
How much and for how long, is moot. Do not forget, he owns Reliance Capital, which runs the largest mutual fund house in the country. I am quite sure all these funds will find Reliance Power a very attractive bet on listing. He would also have "requested" many large global fund managers to be on his side at this hour of need. They may respond too, after all he is an Ambani.
What about the outcome? He may win the battle but lose the war. I am still an idealist, believing that stocks always come around to their fundamental value. For today, the stock may open around Rs 600, trade between Rs 450 and Rs 600 and possibly settle around Rs 500-550 in the near term. That is my guess.
Big individual investors would then have lost money, retail would have lost some faith but at least he would have held the issue price up, as Reliance Petroleum did earlier. However, the Ambanis enjoy an almost infallible image with many investors. I just wish, for their sake, Anil had stayed away from this "bull market valuation" game. Trust takes years to build, and is broken in an instant.
Executive Editor, CNBC-TV18