Zee's share price zooms 40% as Rakesh Jhunjhunwala buys stake, but can it bring back FIIs?

Zee Entertainment Enterprises Ltd’s shares soared 40% on Tuesday after its two biggest foreign institutional investors called for a change of guard and as ace stock market investor Rakesh Jhunjhunwala bought a stake. The media company’s shares jumped by their maximum daily limit of 45% to touch a 52-week high of Rs 270.85 apiece before cooling off to end at Rs 261.50 on the BSE.

During the day, Rakesh Jhunjhunwala’s Rare Enterprises bought 50 lakh Zee shares at Rs.220.44 apiece, totalling Rs.110 crore.

Also Read: Rakesh Jhunjhunwala's Portfolio

Why did Zee Entertainment Share Price Surge?

The surge came after Invesco Developing Markets Fund and OFI Global China Fund LLC called an extraordinary general meeting of shareholders to seek the removal of Zee CEO Punit Goenka. The Invesco fund owns a 7.74% stake in Zee while OFI Global China Fund holds 10.14%. Both funds are part of the US-based asset management giant Invesco. 

The asset manager had increased its stake in Zee in November 2019 by buying shares from the promoter Essel Group, which needed money to reduce its debts. Essel Group is led by media tycoon Subash Chandra, father of CEO Goenka. While Chandra had resigned as Zee chairman in November 2019 itself, Goenka has been leading the company since then even though the promoters now own just 3.99% stake in Zee.

Zee Entertainment, the country’s most valued publicly listed media and entertainment company, has been facing calls from institutional investors for a change of guard as the stock has been a rank underperformer. In fact, after the 40% jump Tuesday, the stock is now at the same level it was in November 2019.

This underperformance is possibly also the reason why foreign institutional investors (FIIs)—the driving force of Indian stock markets—have been exiting Zee. FIIs cut their stake from 64.1% to 57.4% in Zee Entertainment during the quarter ended June 30. 

Moreover, almost 42% FII shareholders exited the company during the April-June quarter. Zee Entertainment counted as many as 524 FII shareholders as of March 2021. This dropped to 306 FIIs as of June.

In fact, Zee Entertainment saw the most distinct selloff during the quarter by offshore investors, which cut stake in around a dozen large caps or companies that currently have a market capitalisation of Rs 20,000 crore or more.

On the positive side, fund managers say the company can now put corporate governance behind as it recasts its board after the resignation on Monday by Manish Chokhani and Ashok Kurien, and if the investors manage to oust Goenka and bring in a non-promoter CEO.