ADAG stocks tumble post SC verdict; stay away from them for now: Experts

Shares of Anil Dhirubhai Ambani Group (ADAG) companies tumbled by up to 11 per cent on the BSE in intra-day trade on Wednesday after an unfavorable Supreme Court (SC) verdict in Ericsson contempt case.

In a big setback for Anil Ambani, the SC today held Reliance Group chairman and its two directors guilty of contempt in pleas filed by telecom equipment maker Ericsson for not clearing its dues of Rs 550 crore. Court asked Ambani to pay Rs 453 crore to Ericsson in four weeks, failing which he will have to serve three months of jail term.

Additionally, apex court has also imposed a fine of Rs 1 crore each on them; if not deposited within a month, they will have to serve one month in jail.

Reliance Communications (RCom) said it respects the Hon'ble Supreme Court judgement. The RCom Group shall comply with same.

"This surely is a setback for the promoter, who will now have to pay up. Over the short-to-medium term, the stocks can remain under pressure. Over the past year, the markets have severely punished Reliance Nippon Life Insurance, Reliance Infrastructure and Reliance Capital. Among the ADAG group stocks, these three should stage a recovery going ahead. The fall on Wednesday post the SC verdict makes valuations of these three even more attractive," says G Chokkalingam, managing director and founder at Equinomics Research.

"Though the SC judgement seems strict or tough, it is a reflection on the way it was fought by Ericsson on the one hand and the impatience or frustration of the judges with the delaying / diversionary tactics adopted by the respondents in quite a few of recent cases," says Deepak Jasani, head of research at HDFC Securities.

Following the verdict, Reliance Capital slipped 11 per cent to Rs 136, followed by Reliance Infrastructure (9 per cent at Rs 112), Reliance Communications (9 per cent at Rs 5.45), Reliance Naval and Engineering (8.5 per cent at Rs 8.22), Reliance Power (6 per cent at Rs 10.25), Reliance Home Finance (4 per cent at Rs 24.75) and Reliance Nippon Life Asset Management (1 per cent at Rs 150) on the BSE in intra-day trade. In comparison, the S&P BSE Sensex was up 0.72 per cent at 35,604 points at 10:52 am.

A K Prabhakar, head of research at IDBI Capital, however, suggests investors should book profit in stocks of all ADAG companies in case of a bounce.

"Court cases take time to get resolved and the stocks are likely to remain under pressure given the development. Investors should steer clear and book profit / loss in case of any recovery in stock prices," he advises.

"RCom has filed for insolvency being burdened by a large debt and a business dependent on technology that was not consumer friendly. It also suffered due to RJio being aggressive in slashing tariffs in a bid to capture market share. Hence, investors may stay away from the stock even in this fall as small bounces on some positive developments may get sold into," jasani of HDFC Securities says.

Adding: "Reliance Naval and Reliance Power have too much of debt and face regulatory/raw material/order inflow challenges. Hence these two also may not be worthy of bottom-fishing. Reliance Capital and Reliance Infra are the better among the group companies though their stock prices will also keep getting dragged down by group related negative news or developments."

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