Dhirubhai Ambani and Reliance

The Stock Market Adventure Contd...

However, the bear syndicate seemed to have undermined Dhirubhai Ambani's capabilities. When the bear syndicate sold Reliance's shares in bulk, Dhirubhai's loyal brokers bought back all the shares, which led to an increase in the share price. The buying took place for 3 consecutive days and forced the scrip to go up. For the purpose, a new company called the "Friends of Reliance Association" was registered because according to the then Indian stock market regulations, a company could not buy back its shares. It bought 857,000 shares out of the total 1.1 million shares sold by Reliance.

After this incident, Ambani was only waiting for an opportunity to take revenge on the bear syndicate. The association which bought the shares, sought delivery on 30 April 1982, a Friday.⁵

But as the bear syndicate did not have the shares it asked for more time, which the association refused and demanded a Rs 50 badla⁶ charge. The Bombay Stock Exchange had to be closed down owing to the situation.

The exchange authorities tried in vain to bring about a compromise between the two parties. And then began the panic buying of Reliance shares and the share prices soared to an all time high. By May 10^th, the crisis ended. Dhirubhai finally succeeded in taming the bulls.

Corporate Battles of Dhirubhai Ambani

Despite his unprecedented corporate valour, some corporate bigwigs considered Ambani to be a manipulator. Critics accused him of using the "more than the usual" ways of obtaining licenses, getting quick approvals for public issues and capital goods imports, and of getting policies formulated in favour of Reliance. Dhirubhai and Reliance were accused of manipulating tariffs to suit their needs and outsmart their rivals.

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5] Alternate Fridays are settlement days on the Bombay stock exchange, when all the transactions taking place in the previous fortnight are cleared.

6] Badla, in common parlance, is the carry-forward system, which means something in return. It serves three needs of the stock market: If an investor feels that the price of a particular share is expected to go up or down, without giving or taking the delivery he can participate in the possible fluctuation of the share. If he wishes to short sell without owning underlying security, the stock lender steps into the carry forward system and lends his stock for a charge. If he wishes to buy the share without paying the full consideration, the financier steps into the carry forward system and provides the finance to fund the purchase.

Case Details

Case Code : LDEN011
Themes: Corporate Social Responsibility, Great Leaders
Case Length : 17 Pages
Period : 1958-2002
Organization : Reliance India
Pub Date : 2001
Teaching Note : Not Available
Countries : India
Industry : Varied

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