Mumbai, Aug. 12: A day after disclosing their merger plans, shares of Aditya Birla Nuvo and Grasim had a torrid time on the bourses. The Nuvo share plunged around 18 per cent, while the Grasim Industries scrip barely managed to overcome its losses.

Aditya Birla Nuvo settled with sharp losses at Rs 1,290.15, lower by 17.60 per cent, or Rs 275.55, on the BSE today, after cracking nearly 25 per cent in intra-day trade. Grasim dropped more than 8 per cent during intra-day trade before managing to recover its losses and ending at Rs 4,565, a gain of Rs 26.05, or 0.57 per cent.

The AV Birla group had on Thursday announced the merger of Aditya Birla Nuvo with Grasim. Pursuant to the amalgamation, the financial services business of AB Nuvo will be demerged into a separate entity called Aditya Birla Financial Services (ABFSL), which will be listed.

Market circles said the merger ratio appeared not to be in favour of AB Nuvo shareholders, while the key concern for Grasim shareholders was the higher holding company discount. Holding companies are generally traded at a discount on the bourses as a large part of their revenues come from dividends.

At present. Grasim holds 60 per cent in UltraTech Cement besides having interest in other businesses such as viscose staple fibre, chemicals and textiles. However, after the merger, the new entity will become a holding company for additional businesses such as financial services, rayon and insulators besides having a 28 per cent stake in Idea Cellular.

Emkay downgraded the Grasim stock to reduce from buy, pointing out that the merger is not in favour of existing shareholders and that the merged entity will command a higher holding company discount for its stake in various subsidiaries.

Sensex surge

The Sensex today surged 293 points to close at 28152.40, posting its third straight weekly gain, and the Nifty jumped 80 points to end at 8672.15 on sustained buying in banking, finance, metal and auto sectors amid persistent foreign capital inflows. 

Besides, investor sentiment stayed upbeat after the India Meteorological Department yesterday said the cumulative rainfall so far had been 3 per cent above the long period average.