Situation is a repeat of year 2005 when the brothers split.
The share prices of all Mukesh and Anil Ambani companies today witnessed a sharp spike, as the markets welcomed the fact that the warring brothers had decided to bury their differences and end the non-compete agreement between the two Reliance groups.
Market experts say the situation is a repeat of year 2005 when the Reliance group stocks, after underperforming the broader markets for several months, had seen a sharp upward move. This was just after the two brothers agreed to split their empire and inked a memorandum of understanding (MoU) during the weekend on June 19, 2005.
“Today's increase in the Reliance group stocks after the news of truce between Ambani brothers is like an action replay of 2005. The only difference is that, then, the brothers had drawn a line through a non-compete agreement between them, which has now been called off,” said independent equity adviser S P Tulsian.
On June 20, 2005 (which also happened to be a Monday), the Reliance Industries (RIL) stock rose 4.92 per cent; Reliance Capital was up 24.8 per cent; Reliance Industrial Infrastructure gained 5.2 per cent; Reliance Energy (now Reliance Infra) rose 11.33 per cent; and Indian Petrochemical Corporation (IPCL) — which later merged with Reliance Industries — witnessed a spike of 3.7 per cent. These sharp gains had propelled the benchmark equity index, Sensex, of the Bombay Stock Exchange to a new high of 7,001.
The investment scenario in the oil and gas and power sector in the county was hit due to the Reliance battle. They were the biggest private sector companies in these sectors. Consider this. A single block, D6, of Reliance Industries in the Krishna Godavari (KG) basin has the capacity to produce 14 trillion cubic meters of gas.
It has been 11 years since the block was awarded to the company in 1999.
According to the non-compete agreement between the Ambani brothers, executed in January 2006, Reliance Industries was not to enter a gas-based power generation business till March 2022. Further, both companies had to open negotiations to finalise the agreement for gas sale to Anil Ambani's Reliance Natural Resources Limited (RNRL).
The new, simpler, non-compete agreement is limited to gas-based power generation. RIL and RNRL will expeditiously negotiate a gas supply arrangement in keeping with the Supreme Court order and hope to conclude negotiations shortly.
"Most of the Reliance stocks were undervalued. While the peace talks will help RIL grow inorganically, in many other businesses apart from oil and gas, Anil Ambani too would benefit, as Reliance Infrastructure suffered only due to the family feud, despite having a good order book and good business model," opined Manish Sonthalia, fund manager at Motilal Oswal.
Rashesh Shah, chairman of Mumbai-based Edelweiss Capital, said, "If the two brothers have called off the non-competitive agreement, there should be a definite strategy in place. Although markets are talking about Mukesh Ambani entering into too many businesses, it would not be immediately done. But definitely, like 2005, this time, too, the move would be positive for markets."
Some market voices, however, caution that the rise in stock prices follow speculation that Mukesh Ambani would venture into businesses ranging from telecom to power generation. With more clarity to emerge in the coming days, the Reliance group stocks are likely to outperform the broader markets. Mukesh Ambani would also be in a position to fulfil his ideas of venturing into telecom and power, conclude analysts.
