Reliance Cap shares jump as brokers find them oversold

MUMBAI: Shares of Anil Ambani group firm Reliance Capital today rose by over 6 per cent after at least four brokerage firms termed the stock as undervalued following the recent plunge.

The shares were 6.1 per cent up at Rs 468.3 in early afternoon trade at the National Stock Exchange. At Bombay Stock Exchange also, the stock was trading 6.6 per cent higher at Rs 470.25.

Today's rally followed a positive stance taken by a number of brokerage firms on the stock after the company announced its quarterly results over the weekend.

In a report published today, Kotak Institutional Equities said that Reliance Capital continued to build its core businesses during the third quarter, with cost controls and fee income adding to its earnings.

"The stock has corrected significantly, likely due challenges in the operating environment across its businesses and general concerns in ADA Group," the brokerage firm said, while finding the stock attractively valued at current level.

It, however, said that investor's confidence on the ADA Group would be crucial in driving stock performance.

Reliance Capital's net profit rose by 68 per cent to Rs 106 crore in the quarter ended December 31, 2010.

In a separate report, Edelweiss said that earnings growth were robust for the companies' core businesses such as asset management and consumer financing.

Edelweiss further said that the stock has under-performed the sector considerably over the past one year due to regulatory concerns in life insurance and mutual fund businesses and business restructuring.

"However, we believe the concerns are largely priced in the current valuations and at this stage, the risk-reward ratio seems to be more favourable," it added.

Morgan Stanley also said that the company has seen improving profit trend in its core businesses as it recorded robust growth in asset management, consumer financing and broking and distribution businesses.

The shares today marked its third consecutive day of rise after falling sharply over most of the recent weeks. Prior, to the current three-day rally, the stock had plummeted by close to 40 per cent so far this year.
                            NIRAJ KUMAR
                              PGDM 2 SEM