BBC in your face : Case Study RELIGARE

September 25, 2023 3 min read

Dabur, the Burman family-owned conglomerate, recently made headlines with its acquisition of an additional 26% stake in Religare, a leading financial services firm. This move has sparked a flurry of activity in the stock market, leading to a surge in the price of Religare shares. In this article, we will analyse the market dynamics surrounding this acquisition and explore the implications for investors.

The Background

To understand the significance of Dabur’s acquisition, it is important to note that they already held a significant stake in Religare, approximately 21% prior to the acquisition. The acquisition triggered the open offer clause, which means that Dabur is obligated to make an open offer to acquire more shares from Religare’s existing shareholders at a price of around Rs235.

What is interesting to observe is the stock’s performance leading up to the acquisition. Prior to 04th August 2023, Religare’s stock was languishing at around Rs170 for several months. However, on August 4th, there was an unusual surge in trading volume, and the stock price surged to Rs230, close to the anticipated open offer price.

This sudden surge in price and volume suggests that some market participants (known circles), were aware of the impending acquisition. These informed investors likely bought the stock at lower prices and consolidated the price around Rs230. This consolidation phase lasted for nearly three weeks, during which the volumes also settled down.

Towards the end of this consolidation phase, there was another surge in volume, indicating the entry of more bullish investors into this stock. This surge pushed the stock price up to Rs280, presumably driven by punters who were not aware of the impending open offer price of Rs235.

While the market dynamics surrounding Dabur’s acquisition of Religare shares are fascinating, it is important to address the issue of market manipulation and news dissemination. The sudden surge in price and volume preceding the acquisition suggests that there may have been selective leakage of information to certain market participants.

Although companies should strive to maintain confidentiality regarding such transactions, it is challenging to prevent news leakage, especially in the context of open offers, mergers, and acquisitions. The non-transparency and unclean practices surrounding news dissemination in this case highlight an ongoing issue in the market.

Given the challenges of keeping market-moving news airtight, it becomes evident that investors should rely more on price trends and a robust process to navigate their investment decisions. The market adage of “following the Bhaav” or the price becomes even more relevant in such situations.

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    BBC in your face : Case Study RELIGARE