Does the market know something we retailers don’t ? Price action of Hathway Cable and Den Networks prior to the RIL announcement.

Reliance Industries Ltd (RIL) caused a major disruption in the telecom market by launching Reliance Jio in 2016. RIL is expected to bring about a major disruption in the cable and broadband sector in the coming quarters. Why?

On 17th October, RIL came out with its second quarterly financial results. It’s shares fell as much as 6.5% after the company reported lower-than-expected Q2 earnings and announcement of further delay in commissioning of the petcoke gasification project.

However, beyond the numbers, buzz was created by its announcement of two strategic investments in Den Networks Ltd and Hathway Cable,picking up 66% and 51.3% stake respectively.

The talks for Reliance’s strategic investment in Hathway and Den Networks have been on for over a year now, according to people familiar with the matter.

But, what’s interesting is the price action of Hathway and DEN Networks in the recent past. It indicates some people might have already known about RIL’s investment prior to its official announcement. Since end of August, Hathway gained 89.10% while DEN Networks showed increment of 50.05% in their prices.This is in contrast to the NIFTY small cap which declined at 14.19%.

How did two unrelated stocks show an uptrend inspite of a recent bearish market? There were no precedented happenings in these stocks to which the price action can be attributed. The only common element is what came out later, which is RIL buying a controlling stake in both these companies.

It is possible that a set of people had inside information of the investment which led to these stocks rising inspite of a bearish market turmoil.

Was this another instance of insider trading or just coincident proof of strong form market efficiency? that’s for SEBI to decide.