The scam involving Dayanidhi Maran and investment by Maxi in The SUN Network under dubious circumstances, has brought into the fore the volatility of stocks where investors, ipso facto,placed their money trusting more on the political connections than the soundness of the project.
This is not to underestimate the competency of the SUN network;in fact it is still the best-managed professional Communications company in India
However, apart from the highly competitive nature of the Industry, the creative assets switching loyalties(remember major creative talent went over to Kalaignar TV when it was started),as policy decisions affect the industry very seriously,the present equation between the DMK and Congress at the Center is highly fluid and susceptible to snapping, the SUN scrips are in for a down ward spiral, unless of course it is propped by you know how by private investors.
This again could trigger media glare and further loss of confidence by the investors.
The Government might also indirectly pressurize the indirectly controlled Govt/Public sector/Banks to offload shares.
This might affect the stock value further.
Sad for a professional, successful Company.
Story:
Shares in Sun TV and the budget carrier SpiceJet crashed by over 27% and 16% respectively on Thursday, following an expose in Tehelka magazine about the role of Dayanidhi Maran when he was the telecom minister between 23 May 2004 and 15 May 2007….
This underlines the perils of investing in companies that seem to grow easily and fast-but with generous political patronage. The shares crashed on allegations that Mr Maran’s family-owned business, Sun TV, received substantial investment from the Maxis Group (which owns Aircel) which picked up 20% equity in Sun Direct. The government approved this investment on 2 March and 19 March 2007. Maxis Group invested a total of Rs599.01 crore in Sun Direct between December 2007 and December 2009. …
With the DMK-linked companies in a soup and DMK out of power in Tamil Nadu, a cloud hangs over the immediate prospects of these companies. The stock prices are unlikely to recover soon. Among the mutual fundinvestors in Sun TV and SpiceJet that would have suffered losses are IDFC Premier Equity, Fidelity Equity, Morgan Stanley Growth, Sundaram Select Midcap, DSP BlackRock T.I.G.E.R and SBI Tax Advantage Series I ..
The promoters of Sun TV hold 77%, while foreign institutional investors (FIIs) hold 9.49%, domestic institutional investors (DII) hold 3.06% of the equity, and the remaining 10.45% is with retail investors. In SpiceJet, the promoters hold 38.61%, FIIs hold 11.84% and DIIs hold 15.10% equity respectively. The remaining 35.45% is the retail shareholding.
Clearly, institutional investors have a significant holding in both companies and they will have a difficult task recovering their investments. The main problem is that both SunTV and SpiceJet have strong political patronage which will be undermined by new polticial equations. Analysts believe that with the DMK’s arch rival J Jayalalithaa of AIADMK, coming to power as chief minister in Tamil Nadu, and the scam-ridden UPA at the Centre, both Maran-family owned companies will find it difficult to grow.
http://www.moneylife.in/article/perils-of-investing-in-companies-growing-through-political-links/16980.html
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