ADAG, sugar stocks fall sharply after rally

Experts say profit booking takes toll on markets as govt under pressure post poll results

Share prices of Anil Ambani-promoted companies, which had risen sharply yesterday, came under heavy selling pressure on Tuesday. Market experts say though the Samajwadi Party’s decisive win in Uttar Pradesh elections was a positive for Reliance Power and Reliance Infrastructure, profit booking on Tuesday resulted in both these stocks taking a beating.

Prices of both have more than doubled since January.

Reliance Infrastructure fell 5.7 per cent to Rs 618 and Reliance Power was down 7.09 per cent at Rs 125.75. Both stocks had risen as Ambani is known to be close to SP chief Mulayam Singh Yadav and there were expectations that long pending mega power and infrastructure projects of Reliance would pick up if the SP won. Ambani had initiated the world’s largest gas-based power project under SP rule earlier, which was stalled under the Mayawati-led Bahujan Samajwadi Party rule in UP.

“Such a poor show by Congress in UP has now become a concern for the equity markets. The UPA (United Progressive Alliance) government now seems to be in no position to take bold economic steps which would improve the country’s macroeconomic scenario. Broader markets were in bad shape and the key index BSE Sensex fell 500 points from the day’s high level, which is why there was profit booking in both Reliance companies,” said Jagannadham Thunuguntala, strategist and head of research at SMC Global Securities.

The SP managed to come back to power in UP with a thumping majority of 224 seats in the 403-seat assembly. This was even higher than exit polls predictions. Television channels had predicted SP would get 180-195 seats. The Congress just managed to win 28 seats in UP.

Select UP-based sugar mill stocks, which had rallied on Monday, also, fell on Tuesday. Share prices of Bajaj Hindusthan fell 7.9 per cent, Oudh Sugar Mills was down 6.6 per cent and Dwarikesh Sugar was down 5.7 per cent. All three had gained between three to eight per cent yesterday.

“I do not think the correction in the share prices of the sugar companies is justified, given that fundamentally nothing is going to change as far as elections are concerned. In fact, this could be a buying opportunity, given that many of these stocks are now trading below their book value. Also, in terms of the outlook, there is less downside risk, given that lot of concerns are already in the prices,” says Sageraj Bariya, managing partner, who tracks sugar sector at Equitorials, an alternate research house.

The share prices of sugar companies rose as the SP has shown a favourable attitude towards the state’s sugar industry. It is expected to bring back some of the benefits it extended to the industry in 2004. The benefits had been scrapped by the Mayawati government in 2007.

The past for the domestic sugar industry has not been good, but the future holds some hope, say analysts. Things are unlikely to worsen from here on and in the next sugar season starting October 2012, things should start improving, as the demand-supply situation will turn favourable on limited supplies. Among companies, Bajaj Hindusthan and EID Parry remain analysts' top picks in the sugar sector. The share price of EID Parry fell 1.8 per cent. The share price of Jaiprakash Group of companies, which won many projects under the Mayawati government, fell further on Tuesday.