Shares in Indian billionaire Anil Ambani’s flagship Reliance Communications fell nearly eight percent on Monday after the group was removed from the benchmark index of the Bombay Stock Exchange (BSE).
RCom, India’s second largest mobile phone firm, closed down 7.89 percent to 87.6 rupees ($1.95) while Reliance Infrastructure, which was also removed from the index, ended down 6.07 percent to 545.25 rupees. From August 8, both companies will be pulled out of the group of 30 leading shares that form the Sensitive index or Sensex, the BSE said without giving reasons. They will be replaced by Sun Pharmaceuticals and the state-run giant Coal India respectively.
A BSE source told AFP that the stock exchange had no role in deciding the change. “An independent committee of experts decides on changes in indices” based on parameters such as liquidity, market capitalisation, trading volumes, history, sector representation and portion of shares held by investors for trade, the source added.
RCom’s stock has more than halved from its year-high price of 204.75 in June last year, while Reliance Infrastructure is down 55 percent from its 52-week high of 1,225 rupees. Intraday, RCom shares were down nearly 10 percent while Reliance Infrastructure had lost just over 8.5 percent.
The withdrawal of the firms comes at a time when Anil Ambani is attempting to revive the fortunes of his businesses, particularly in the key telecoms and financial services sectors. Investors have been offloading shares in the group since it emerged that Ambani met federal police in April, as they investigated alleged irregularities in the awarding of second-generation (2G) mobile phone licences.
Three senior executives from group subsidiary Reliance Telecom are on remand in prison facing charges of cheating, forgery and criminal conspiracy in the 2G fraud case, which is thought to have cost the country billions of dollars. Both Ambani, India’s eighth-richest man with an estimated $8.8 billion fortune, according to Forbes magazine, and the group have denied any wrongdoing.
“The perception of the ADAG (Anil Dhirubhai Ambani) group is weak at the moment due to regulatory and financial concerns,” said Jagannadham Thunuguntla, head of research with New Delhi-based SMC Global Securities. “(The Sensex removal) will impact visibility and the stature of the stocks.”
RCom, which has recorded seven straight quarterly falls in profit, is trying to lower its ballooning debt and find a partner to buy a controlling stake in the telecom tower unit Reliance Infratel. RCom’s net debt was $7.12 billion for the fiscal year ended March.
It is one of the several Indian cellular firms that compete intensely in a fast-growing sector. India is the world’s fastest-growing cellular market and has more than a dozen operators, compared with just two state-owned telecom firms a decade ago.
The flood of new players has unleashed a cut-throat price war, affecting the profits of most local telecom firms, with calls now costing less than a cent a minute in India. RCom had announced a $222 million share buyback earlier this year to bolster its share price.
