The financial institutions are likely to sell their 39.62 per cent stake in BSES to Reliance Industries by accepting Reliance's open offer.

The institutions feel that Reliance anyway is set to take control of BSES. Once that is done, the share price of the company may fall further.

"The same thing happened at Indian Petrochemicals Ltd. This is the pattern. We don't want to saddle ourselves with a big chunk of equities without an upside potential," said an institutional source.

In other words, they are ready to accept Reliance taking over the company as a fait accompli.

This is significant because the FIs have so far been treating BSES as a professionally managed company.

Institutional heads are negotiating for a better price with Reliance. But they are likely to offload their stakes in BSES even if Reliance does not raise its price.

The Reliance group has made an open offer to acquire an additional 20 per cent stake in the power company at a price of Rs 230.10 per share and is seeking management control of BSES.

Institutional sources said the decision to sell or hold on to one's stake rested primarily on the potential for the growth of a company and the corresponding reflection in its valuation.

"Once a corporate gets majority control in a company, it aims at consolidating its holding. We are not excited about the growth potential of BSES," an institutional source said.

As the institutions did not think that the valuation would grow substantially, they were unlikely to hold on to their stakes in L&T, institutional sources said.

Reliance today is the largest stakeholder in the company, accounting for 43.44 per cent of the equity. With this second open offer, the petroleum giant will hold over 63 per cent, well exceeding the 51 per cent required for majority control.

In the year 2000, Reliance had made the first open offer, following which its shareholding rose from 14.82 per cent to 26.68 per cent.

Since then, it has been increasing its stake through the creeping acquisition route as per the permissible limits laid down by the Securities and Exchange Board of India.

If Reliance hikes its stake to over 51 per cent, it is expected to increase the number of its nominees on the BSES board from three to five.

The institutions hold the second largest block of shares in BSES, after the Reliance group.