Shocker: RCom, RPower hit all-time low. Here's why

Anil Ambani-led Reliance stocks have taken a major beating today on the Bombay Stock Exchange after a UK regulator on Wednesday made a startling claim that Anil Ambani had illegally created a vehicle in Mauritius to invest in India.

While Reliance Communication is trading at an all time low of Rs 67.75, down 2.5 percent, Reliance Infrastructure in trading at a nine-year low at Rs 350.5, down 2.50 percent.

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Reliance Power too is trading at an all time-low at Rs 74.24, down 3.5 percent, while Reliance Capital is at a seven-year low. It is currently tradint at Rs 260.35, down 3.3 percent.

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Analyst Sudarshan Sukhani of s2analytics.com too maintains a sell on Reliance Infra and Reliance Capital as the two stocks are likely to slip further.“I would trade Reliance Communications only on the long side. I think the charts are now far better for it than for the other ADAG stocks,” he told CNBC TV 18.

According to a report in Financial Times, two UBS bankers created Pleuri in Mauritius to allow Anil Ambani to illegally invest in Indian stocks - and this evidence was presented by the Financial Service Authority (FSA), the UK market and financial services regulator, before a London tribunal. Under Indian law, Indian nationals cannot invest in stocks through overseas subsidiaries, Firstpost reported yesterday.

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According to the F_inancial Times_, “Mr Ambani…has not been accused by the FSA of any wrongdoing….The FSA alleges that in addition to trying to establish the offshore structure for Mr Ambani, Mr Karpe made unauthorised trades on other clients’ accounts. To hide losses, Mr Karpe allegedly arranged loans from other clients, falsely promising them that the loans would be guaranteed by UBS at an above-market rate.”

However, according to the Reliance Group spokesperson, “The matter is nearly five years old, and has already been closed with Indian regulators under the consent order framework in January 2011. The matter relates to regulatory action in the UK against former employees of a foreign bank, for unauthorised trades made by them and misuse of a large number of client accounts. The bank has already accepted the weaknesses in its internal systems and processes, and settled the matter with the UK regulators by payment of a fine. There are no charges levelled against us by the UK regulators in these proceedings. As such, we are not party to these proceedings, and not represented therein.”

Apart from fundamentals, quality of management also plays an important role in determining investments, especially for foreign institutional investors. Even allegations of wrongdoing are enough to scare away investors, which is what is reflected in the share prices of the group. Though the company has said the matter is closed, markets do not seem to think so.