SC gas verdict shakes up markets

Fri, 7 May 01:30 pm

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Following the verdict on the Ambani family dispute, the Indian markets saw a very volatile trading session during the previous two hours of trade. However, towards the end of the session, the markets began inching towards the dotted line. Selling activity is witnessed in stocks across sectors led by stocks from the realty, banking, metal and engineering spaces. The BSE-Oil and Gas index is the sole gainer.

BSE-Sensex is trading lower by 160 points while NSE-Nifty is trading 65 points below the dotted line. BSE-Midcap Index is trading lower by 2.3%. BSE-Smallcap index is trading 2.7% below yesterday's closing. The rupee is trading at 45.63 to the US dollar.

Engineering stocks are currently trading weak led by Suzlon Energy, EMCO, Praj Industries and ABB. A leading business daily recently reported that wind energy major Suzlon Energy is in talks with Caparo Energy to set up wind farms in India. The talks are for setting up capacities of 3,000 MW (megawatts). Caparo Energy is a joint venture between the London based Caparo Group and Finland's Wartsila. If these talks do go through, it would be a strong positive for Suzlon as it could rake in revenues of about US$ 3 bn (or Rs 135 bn), translating to revenues of US$ 1 m per MW. This 3,000 MW capacity is to be set up over a period of six years. It must be noted that this information is not officially stated by the company. As per the source of this information, this agreement is likely to be finalised sometime this month. Further, as per discussions, Suzlon Energy is believed to also help Caparo identify wind farm sites in India and may also help in land acquisition efforts.

Stocks of Anil Ambani promoted companies came under pressure during the previous two hours of trade as the long stretched row between the Ambani brothers went in favour of Mukesh Ambani's group companies. Stocks of Reliance Natural Resources, Reliance Power and Reliance Infrastructure are the top losers amongst stocks forming part of the BSE-100 Index. The stock of Reliance Industries on the other hand is the top gainer.

As per the Supreme Court's verdict, RIL does not have absolute right over gas and that the price is subject to government approval. As such, it is for the government to evaluate the price of fuel. Since the MOU between the two parties (the Ambani brothers) was not made public, it does not fall under the corporate domain. As per the agreement between the two brothers (back in 2005), the purchase for gas for the Anil Ambani group companies would be fixed at US$ 2.3 per unit. However, since the government had decided to price RIL's production from the KG Basin field at US$ 4.2 per unit, RIL argued that the agreement had to be altered stating that the family agreement price was too low. In addition, the court has said that the MOU) between the brothers cannot supercede the government's decisions or contracts. In addition, it has given the two brothers a period of six weeks to renegotiate their contract.