Stocks of companies with political links beaten down
Moneylife Digital Team 29 November 2010

The scam-polluted environment spells doom for stocks of companies with suspected links to political figures and parties

Even as the skeletons keep rolling out of the cupboards of Indian officials and politicians, companies that are seen to have affiliations to politicians are paying the price for their connections. Investors have suddenly found reason to turn sceptical about the links of some corporates to the political class and they are losing losing confidence in these companies. As such, the stocks of several companies have taken a severe beating in this scam-polluted environment.

As if the 2G spectrum fiasco and the scandalous tapes involving high-profile bureaucrats, industry leaders and journalists in a power-broking drama weren't enough to unsettle the markets, the recently unearthed bribes-for-loans scam has only fuelled the fire. Several companies and their promoters suddenly find themselves on the radar of nervous investors, who fear more dirty linen may be washed in public.

Indeed, among the companies that have seen substantial erosion in their market valuations are those whose promoters share strong equations with some influential political leaders in the country.

For instance, HCC's stock has plunged 38% from its level earlier in the month. It turns out that the controversial Money Matters Financial Services is associated with Lavasa Corporation-a subsidiary of HCC-for whom Money Matters acted as an agent to sell its properties. Lavasa was also hauled up by the Environment Ministry last week, for some violations, and this is keeping investors on tenterhooks. Promoter Ajit Gulabchand is close to agriculture minister Sharad Pawar.

IRB Infrastructure's chairman and managing director Virendra D Mhaiskar is also known to be close to Sharad Pawar. The IRB stock has hit Rs195 from Rs270 in a matter of weeks. Jaypee Infratech and HDIL are also companies which were associated with Money Matters Financial Services, which arranged loans for them early this year. Jaypee is seen to have considerable influence due to its affiliation with Uttar Pradesh chief minister Mayawati. The Jaypee has plunged 22% since 12 November 2010. HDIL's managing director Sarang Wadhawan is seen to have connections with leaders in the both the Congress and the Shiv Sena. The HDIL stock has sunk 32% since 10 November 2010.

On a different note, IVRCL and Nagarjuna Constructions seem to have suffered a crisis of confidence post the death of popular leader YS Rajasekhara Reddy in a helicopter crash last year. The stocks of IVRCL and Nagarjuna have been quite weak throughout 2010. In November they tanked 22% and 20% respectively.
 
These companies, while capable of executing large infrastructure projects, had benefited from YSR's focus on infrastructure development in Andhra Pradesh.

This sharp fall in stock prices is not a comment on the quality of these companies, but rather a turnaround in market perception. For long, companies with strong political affiliations have been known to find a favourable place in investors' minds, given the muscle power and flexibility that came along with keeping such company. However, this very 'advantage' that seemed to work so well in favour of these companies seems to have suddenly turned into a weakness.

Comments
purusha.19
5 months ago
Can you share article or details Sugar Stocks of companies with political links ? Since lot of noise on Sugar sector
khalid
1 decade ago
It looks like you are right upto some extent as its not applicable to all the scrips having connection to politicians.
Ninad Avasare
1 decade ago
Except TATA and IT companies , most of the other company do have links with politicians.
Kaushik
1 decade ago
But what about the big daddy - Reliance goup? when it comes to political influence they are the biggest one..
Ninad
Replied to Kaushik comment 1 decade ago
Yes you are right.
Infact both Ambani brothers have good link with politicians.
I think therfore why ADAg stocks plunged down.
Sharma
1 decade ago
In the end, one finds that all assets turn into liabilities!
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