Brand name enough to invest in stock market? A case study – Reliance Power Ltd

RPower.JPG

The important lesson from RPower is — ‘Don’t catch a falling knife’.

If we ask any old-time investor, and he will say that if you want to bet on one person on Dalal Street it would be the (late) Dhirubhai Ambani, founder of the entire Reliance group empire. He was fondly called the architect of India’s capital market. Brand Ambani is synonymous with wealth creation and taking care of shareholders’ interest. But the RPower listing has taught the lesson that the business is more important than the brand name.

The IPO of Reliance Power had generated bids worth over ₹7 lakh crore and the issue got subscribed by more than 72 times.February 11, 2008, was a historic day for the Indian stock markets. The shares of Reliance Power, after the company collected a record sum in its mega IPO (Rs.11,563 crore), got listed with much fanfare.Anil Ambani-controlled RPower had fixed the issue price at ₹450 a share for non-retail investors and ₹430 for retail investors.

RPower, which surged 19 per cent to ₹538 at open, saw the expectation of a dream debut vanishing into thin air within four minutes of listing. Shares nosedived to ₹355 and closed at ₹372.50. In just one day, billions of rupees of investors’ wealth had been wiped out. Sadly, the initial four-minute high was the only period the stock would manage to rule above the IPO price till date.As a face-saving measure, the company announced free bonus shares in the ratio of 3:5 (three shares for every five shares held in the company) to all categories of shareholders, except the promoter group, shortly after listing. This reduced the cost of RPower shares to ₹269 for retail investors and to ₹281 for other allottees.

But,in three years, the stock of RPower lost 21.1 per cent and in five years, the loss mounted to 47.6 per cent. And for those who are brave enough to be holding the stock till date, the stock has lost 79 per cent!

Source:  10 years after RPower listing: Busting many myths

Economics I understood

Prashant Pandya View All →

I am a full-stack engineer whose passion lies in building great products while enabling others to perform their roles more effectively. I have architect and built horizontally scalable back-ends; distributed RESTful API services; and web-based front-ends with modern, highly interactive Ajax UIs.

I deal with:

Techniques
Web applications
Distributed architecture
Parsers, compilers
Mobile First, Responsive design
Test-driven development

Using technologies :

+ASP.NET,C#,VB.NET,C++,MS SQL,ADO.NET,WCF ,MVC,Web API
+Java, JAX-RS, JavaScript, Node.js
+Ajax, JSON, HTML5, CSS3
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My Qualities ,I believe :

Self-directed and passionate
Meticulous yet pragmatic
Leadership skills, integrity

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