Irrational exuberance in RIL stock

Thu 23 Feb 2017, 20:46:26
Is Reliance Jio Infocomm Ltd worth $5.8 billion more in one day? The Reliance Industries Ltd (RIL) stock had moved up 1.4% on Tuesday when its chairman and managing director Mukesh Ambani announced (during market hours) Reliance Jio’s decision to start charging its subscribers from 1 April. However, the RIL stock’s 11% jump on Wednesday has left many analysts shell-shocked. The rise meant that the company’s market capitalization increased Rs38,732 crore (or $5.78 billion) in a single day.
That’s at a time when analysts feel that the stock

was pricing in an implied negative equity value for the telecom business earlier. Some analysts believe that rumours about a strategic investor in Reliance Jio or possibilities of listing the firm separately may have boosted the stock.

Nevertheless, Reliance Jio’s announcement removes a key overhang for the RIL stock. “Over the last few weeks, a key investor concern was the possibility of Jio extending its free offer period or starting with nominal tariffs at the onset,” analysts from Goldman Sachs wrote in a note.

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