Market Watch: The mysterious case of the Essar stocks

Nowadays stocks move in “packs”. First it was the Reliance Industries pack, then the Anil Dhirubhai Ambani Group pack and now it is the Essar pack, writes Udayan Mukherjee.

Nowadays stocks move in “packs”. First it was the Reliance Industries pack, then the Anil Dhirubhai Ambani Group pack and now it is the Essar pack. Do not ask me what diverse businesses under the same promoter may have in common to justify a simultaneous explosion in stock prices, I am as clueless as you are. It is as mindless as saying Tata Steel, Tata Motors and TCS should all rally at the same time. However, this week, stocks of Essar Oil, Essar Steel and Essar Shipping have all skyrocketed.

HT Image

Essar Steel has been the most inexplicable. Here is a stock that is about to be delisted; the delisting process is complete and the discovered price for shares tendered in the process was fixed at Rs 48, which is also the price the promoters will pay to mop up the residual stock post delisting. Yet, the stock shot up to Rs 70 on Friday morning, defying any logic. The huge volumes traded on Friday makes me fear that a lot of traders would have been stuck in the Rs 65-70 band while the stock crashed to Rs 50.

A similar buzz is doing the rounds on Essar Shipping. The promoters tried to delist the company earlier this year but did not get much stock from shareholders around the floor price of Rs 31.6. While there are rumours of a much higher price, Essar Shipping, at Rs 63, trades at a valuation premium ranging between 50 and 100 per cent to its peers like GE Shipping, SCI and Mercator. Baffling.

Finally, there is Essar Oil, where a delisting approval is in place even as unconfirmed talks abound about massive expansion plans, stake sales etc. People have very short memories in the market. With no disrespect to the Ruias, this group has a chequered past, littered with instances of liquidity problems and execution delays. This is no Reliance. A fact that perhaps explains why you rarely find an Essar group stock in any fund manager's portfolio. Also, for people getting excited about delisting offers, the Essar Steel experience does not exactly indicate bountiful offer prices. Look before you leap.

Executive Editor, CNBC-TV18