In a big market development, shares of Reliance Power fell 5% as the board of the company gave its nod to the plan to raise sizeable amount of ₹4,200 crore. This is coming at a really volatile period of trading in Reliance Industries, and investors are concerned with the financial strategies of the company in view of its market positioning.
About the Company Reliance Power
Reliance Power-a subsidiary of the RELIANCE GROUP-it is mainly involved in power generation as well as other related activities. Reliance Power had had a tough time over the years facing issues of various regulatory and financial limitations. The latest approval granted by the board for a series of fundraisings indicate that Reliance Power may look to improve its balance sheet or finance ongoing projects or even debts.
Recent Stock Performance
The market has not taken it very well, hence the dipping stock price of Reliance Power. Investors hardly warm up to dilution of shares, and this has been the case with companies already under financial observation. Overall, there is a sense of decline in stock at 5%, indicating concern about the capabilities of a company to properly navigate its financial landscape.
In a similar incident, the holding company Reliance Industries also had a roller coaster ride week in the stock market. The stock had declined by 7% during the period, taking its toll on its market capitalization. This happens even when it is preparing for the issue of a bonus, which makes trading even more volatile.
There are many factors behind the downward trend in Reliance:
The prevailing broad market conditions have been highly volatile, and many of India’s leading companies, including Reliance, have faced an up-and-down ride through various macro-economic factors.
Thus, the investor sentiment is smogged by fear over dilution in share value and the health of the company’s pocket while it goes about securing a fundraising plan worth ₹4,200 crore. Investors are always put off by companies that resort to fundraisings, especially when such steps are interpreted as a sign of financial distress.
The losses the stars like Mukesh Ambani and Gautam Adani had incurred also cast a shadow over the Indian market. Where Ambani’s net worth had dropped by a whopping $1.62 billion to $105 billion, Adani’s had declined by about $94.2 billion. Such drops in the wealth of stars form a loss of confidence among investors in the general market that affects Reliance also.
Reliance has offered the holders of partially paid-up equity shares an opportunity to become eligible for a bonus issue, for which last date is October 7. That will attract some investors, but at the cost of uncertainty, though the market takes some time to digest the changes in the share structure.
Competitive Structure
It should be noted that Reliance Power was competing with some of the stronger companies in India, which were rapidly moving within the fast-changing energy scenario. In this regard, there were Tata Power and Adani Power, two big players that have accelerated the growth of their renewable portfolios very aggressively. Both these companies have managed to attract significant investments. In turn, competition grew more competitive, giving extra pressure on Reliance Power to be innovative and manage projects well.
The share price meltdown of Reliance Power after the board approved the scheme to raise ₹4,200 crore reflects challenges that it is likely to face under looming market volatility and concerns of investors. The overall financial scenario, worsened by being one of the biggest losing business leaders and just ahead of the bonus issue, makes a cautious sentiment dominating Reliance’s stock. The company shall definitely require effective communications with investors and execution of financial plans to restore confidence and stabilize its market position when it is trying to overcome these problems.
