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Dear Friends,
Seasons Greetings,
Happy Holi…!!
The recent drastic fall in Ranbaxy stock price clearly indicates that the original promoters of the company, The Singh family had the complete information on the fundamentals of the company. If one believes the news flow then Mr Malvinder Singh has clearly proved himself to be a King,” Singh is King”. There is a specific reason for my observation on Ranbaxy laboratories. In India the problem is that the common people have to follow all rules, regulations and the byelaws while the well-connected coterie gets away with almost everything. I fail to understand the reason why no Insider trading regulations are applicable when promoters sell their stakes to other companies on the basis of information, which is only available to them. In this particular case of Ranbaxy while the promoters sold 100% of their own equity interest in the company, a common investor could only sell 33% of his equity interest in the company (the actual acceptance ratio came to 56% which is still a big discount to the promoters share of 100%). If equity shares represent equal voting rights for a promoter or a public shareholder, I fail to understand the reason why the law makes disparity between promoter shares and public shares at the time of change of management. An innovative idea could be to have a complex takeover of 100% equity practiced by many developed countries. If the situation demands then it can be a 51% proportional equity purchase from both the segment of management and public shareholders. In recent days I have seen the same fate of post offer stock price in a good number of listed companies. Case in point could be UTV software, Matrix labs, Sah petroleum, Apollo sindhori financial services or Ambuja cement.
Vedanta group has announced almost a fortnight back about the delisting of Madras aluminum. One should note that way back in September the group was trying for a restructuring of its operations and merger of Vedanta aluminum with Malco. I strongly believe that the promoters are using Bear market to shore up their stake in a valuable non-ferrous company. The reason for my above statement is that Malco apart from having Aluminum smelting capacity also has a Power generation plant. Moreover few people know that the company holds 2.56 crs shares of Sterlite Industry limited. It also holds 1.1 cr shares of India Foils. The current valuation of both of the above holding comes to 650 odd crs with 640crs for sterlite industry and 10 crs for India foils. At the upper band of acceptance price the promoters have agreed to value the company at 1181 crs. I am really surprised that after deducting the valuation of sterlite industries the amount being paid is Rs. 531 crs for a business whose Ebidta in 2007-08 was 123 crs and in 2006-07 (9 months) was 174 crs. Moreover any market participant will agree that current low valuation of Sterlite is unsustainable in long term. At the end of the day stock market is all about valuations. Few people know that way back in 2005 Vedanata group had tried to get the company delisted but was unsuccessful.
Trading Nifty last week was a pleasant experience with nifty almost reaching 2505 odd levels on Friday (low in futs was 2525 and spot 2539) the reason why I mention the word pleasant is that below 2662 .It almost gave a risk free 5% returns in less then fie days. The way banks tanked post the announcement of a surprise Rbi action must have been a pleasant reaction to the people who knew the announcement. The way select stocks are tanking is really worth noting. Reliance capital made fresh 52-week lows in four out of five trading sessions. 319 levels was an important support for the stock and a good retracement rally could have been possible. I believe the way stock tanked below 319 was because long term sl of many investors might have been triggered. The market capitalization of the company has dropped from 71000 crs to 7100 crs. I believe next support is at 245. I would really like to know the fundamental reason for the drop in share price. I am an ardent follower of the belief that markets have complete information. Sujana tower is another case in point. Its surprising to see how so many investors can be wrong at one point of time. This week signaled an exit of almost all high profile names from the company. Stock price has crashed from 235 odd levels to 8 odd levels. Aban has broken the 5% support level at 260 odd levels. If 260 support held then the stock was ripe for a 50% retracement rally to 390 odd levels. Since the stock broke the 260 odd levels this week it can reach all the way to 52 odd levels. I might be wrong but then if someone is long please don’t exit your holding at the same time don’t average your holding.
The best trade for the truncated week ahead is to trade markets from Thursday. I don’t expect major trading interests to be visible on Monday. Traders can short Nifty at spot level of 2660 odd zone with a sl of 2%. Do note that markets have made a higher bottom by not breaking 2505 odd levels in Nifty spot. Once this level is taken out we will be using a trendline support from the October 26th low. Two major factors going ahead will be the selling of Fii’s in cash segment and the effect of the Financial Year ending on the stock markets.
Have a great trading week ahead.
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Nifty support- 2535,2509
Nifty resistance-2662,2765
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