In a deal brokered by their mother, Mukesh Ambani and younger brother Anil - whose father founded what would become the chemicals-to-energy giant half a century ago - decided over the weekend to part ways and split the group.

 

Shares in flagship Reliance Industries, the Bombay share index's second-biggest constituent, jumped 7.5% to a record 645.70 rupees in heavy volume.

 

Mukesh will run Reliance Industries, India's top petrochemicals maker, and Indian Petrochemicals, which rose 7%.

 

Following Anil Ambani's announcement of fresh capital for the two listed companies he will run, shares in Reliance Energy surged 19% and those in Reliance Capital soared 30%.

 

The younger brother will also run fast-growing phone arm Reliance Infocomm.

 

Further gains

 

But, amid the euphoria, analysts expected further gains would be capped by a lack of detail on the group's restructuring.

 

"Reliance shares are fairly valued," said Gurunath Mudlapur, head of research at Khandwala Securities. "It would be really stupid to buy at current levels."

 

While the first of the economically vital monsoon rains finally washed over Bombay and the market rallied above 7000, Reliance companies made up four of the top six stocks by volume and accounted for a fifth of all shares traded on the market.

 

Further gains may be capped by
lack of restructuring details

"The market is buoyed by the Reliance settlement and the revival of the monsoon," said Sandeep Shah, assistant vice-president of equity sales at IL&FS Investsmart.

 

The Ambanis' agreement to split comes less than three years after the death of their father, Dhirubhai.

 

Rumours of a fraternal rift had circulated since then, but it only became public last November.

 

Details

 

"What we're seeing today is more a knee-jerk reaction. We still need to see the structure," said a foreign fund manager who declined to be identified. "The devil is in the details."

 

Merrill Lynch recommended a buy on Reliance Industries, with a 673 rupee price target, saying it could now focus on its core business and the restructuring would unlock the value of its holdings in the group, which overall earns a total of $23 billion in annual revenue - more than 3% of India's economy.

 

Anshukant Taneja, credit analyst at ratings agency Standard & Poor's, agreed the unlocked value would be positive for Reliance, but worried about newspaper reports of a $2.3-billion (100 billion rupee) payment to Anil in the settlement.

 

"If the financial aspects involve a substantial cash outflow from Reliance Industries, resulting in increased leveraging, then it could possibly be negative," Taneja said.

 

"If the financial aspects involve a substantial cash outflow from Reliance Industries, resulting in increased leveraging, then it could possibly be negative"

Anshukant Taneja,
credit analyst, Standard & Poor's

As for the exuberant stock market, analysts noted the risks of rising oil prices and what has so far been a patchy monsoon.

 

"The long-term fundamentals still remain strong, but what I am a bit nervous about is the fact that we seem to be ignoring some factors such as an uncertain monsoon and high crude oil prices," said Andrew Holland, vice-president of research at DSP Merrill Lynch.

 

Raised prices

 

India's government on Monday raised retail petrol and diesel prices by about 7% in some areas, to bring them closer to their real value as crude prices continue to soar.

 

"If the market corrects from the current levels, I don't think Reliance shares would be insulated," said CJ George, managing director of Geojit Financial Services.

 

The Bombay bourse has risen 13% since 2 May. Its previous record high was on 9 March, when the index touched 6954.86.