Wednesday, October 23, 2013


Sintex stock is up 72% this month and what is truly amazing is that the stock has started to rally right after 30th September, which is end of the quarter. So what exactly happened in Q2 and what has happened since?

I am just looking at the recent shareholding pattern changes. In quarter ending September 30th, FIIs hold 3.7 crore shares or 11.82% of equity, which is remarkably lower than 7.8 crore shares or 24.8% of equity they held at the end of June quarter. And what really amazes me is that this was not bought by either mutual funds or other domestic financial institutions whose total shareholding is almost flat between quarters. And the promoter shareholding didn’t change as well – so who really bought?

The non-promoter, non-institution shareholding is up sharply to over 40% vs little over 27%. In fact individuals now own 8.3 crore shares vs 5.5 crore shares. But what is really perplexing is the category called “Bodies corporate” – Their shareholding is up to 4 crore shares vs 2.8 crore shares. That’s a jump from 8.9% to 12.9%.

Who are these corporate bodies and individuals? None of them holds over 1% stake and hence it’s not shown in the breakup of shareholding pattern, but if the grapevine is to be believed, we have seen a lot of smart/informed buying by certain blue blooded investors (Also, this at times has been disguised promoter buying but we cannot infer that in every case)

By the way, promoters also bought 25 lakh shares between October 17 and 18 and they made a proper disclosure to that effect. From those levels, the stock is up 50%!!!

Now Q2 numbers looked good for Sintex, but the balance sheet is still in a mess. In fact from the same shareholding pattern, you see Bank Of Newyork holding 10.2 cr shares as a trustee for $140 m FCCB due in 2017. Now 10.2 crore shares are worth 350 crores and $140 m FCCB amount to Rs 870 crores. So there is still a lot of risk that this company is carrying.

What to do now with the stock? Well, if you managed to get in early, there is no harm in booking say 35-40% of your holding which might cover your entire costs and make some money as well and ride the rest with a strict trailing stop loss. But if you have missed the bus, wait for the next bus – don’t try to catch this one.

Note: This article was first published on

Tuesday, October 22, 2013


I love how people can be in denial despite their call going horribly wrong. One of the leading brokerages downgraded Asian Paints on October 14, cutting the target from Rs 505 to Rs 405, and since the brokerage is a real blue blooded one, the stock fell from Rs 485 to Rs 470 – the analyst must have felt a million dollars, but wait, within 3 days, the stock is back to 485 and on 5th day, the stock hits a lifetime high of 530 Rupees after spectacular number.

The brokerage also had a research tactical idea of the stock underperforming which was closed today. All they say in closing the note is this – “This Research Tactical Idea is closed because the stock price has moved contrary to our expectations. Effective immediately, the Tactical Idea published on Asian Paints (ASPN.NS) on October 14, 2013 has been discontinued and should no longer be relied upon”

Now my problem is not that an analyst call has gone wrong. My problem is the resistance the analyst community has to eat their words and admitting that they got it wrong. I have seen 5 brokerage reports this morning and none of them has a buy on the stock, It’s a consensus Sell/Underperform/Underweight.

To all these analysts – I have just a one line response– the stock is up 8% this week, 13% this month and 20% this year. Oh, and the stock is up over 100% since the start of 2012.

Now of course, the key is what to do with this stock going forward. At 30-35x on eyear forward earnings, this is one of the most expensive stocks. But then, when has that stopped a stock from moving higher? If that was the case, Jubilant Foodworks would have never had the rally it had – HUL would have topped out at 450 or 500. Why are investors willing to pay this kind of premium?

The answer lies in the factor that we sometimes ignore; the growth factor. The company has seen double digit volume growth in a seasonally weak quarter. Over the last many years, the company has grown its topline and bottomline in double digits and the stock has been one of the most consistent performers over a 20 year period. In fact if you were to just take FY16 into account, the stock would be available at around 25x earnings, still expensive but then at least you have visibility and certainty of earnings.

Bottomline, the stock may well correct 10% if the market gets into further risk on mood and we see a shift from defensives to high beta. But as of now there is no evidence to believe that the stock will change its texture of being a consistent long term outperformer

Thursday, September 26, 2013


The ONGC stock has been in focus all through this year. In fact this is the only PSU oil stock worth any significant weight on the index. It’s a pity that this stock has been suffering from whims and fancies of Government in an election year.

Let’s just take a look at what is going on. India’s FY13 oil subsidy burden was Rs 1.6 lakh crores. The Government paid Rs 1 lakh crores out of that and made upstream companies pay the balance Rs 60,000 cr. This roughly works out to 62% for Govt and 38% for upstream, which has been stable for 2-3 years. Out of this, of course ONGC paid the lion’s share of over 80%.

FY14 started on a great note. Global crude price started to soften and the government introduced a monthly price hike of 50 paise per litre on diesel. The combined effect was a projection of only Rs 80,000 crore as under-recovery for FY14 – a straight cut of 50%. However, just when things looked sanguine, came the unknown devil of sharp Rupee depreciation.

A sharp depreciation from Rs 55/$ to around Rs 65/$, along with 10-15% surge in crude prices from lows meant that the under-recovery projection is now back to Rs 1.6 lakh crores. If the Govt bites the bullet and hikes diesel prices by Rs 5/l in one go, this can come down to Rs 1.25 lakh croes, however that diesel price hike is now looking a distant reality.

So where does ONGC stand amidst all this drama? As I wrote, when the year started with an under-recovery projection of Rs 80,000 crores, the street applied the formula of 38% and assumed that the upstream contribution will be down to Rs 30,000 crores. However, it missed the risk that the Government will want to take the benefit of its move on diesel and fall in crude prices. Slowly but surely, street began to realize that there is a risk of upstream still ending up paying Rs 60,000 cr as the ‘worst case scenario’.

However, now even this Rs 60,000 cr burden actually looks ‘best case scenario’ for upstream instead of being ‘worst case scenario’. There is a good chance that the Government makes upstream pay more than they did last year citing the fact that upstream gains significantly due to Rupee depreciation and at some stage needs to pass on some benefit to the Government.

The ONGC stock was comfortable above 300 when FY14 started, even hitting a high of 355 – but since then it’s been a downward journey and we have seen a correction of 22% from the highs. To be fair the stock is still YTD positive and that’s because the street believes that while there may be near-term concerns, the sheer value in stock may start to reflect once elections are out of way.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation. All views expressed in this blog are my personal views and my channel does not subscribe to the same

Friday, August 23, 2013


Thursday should reaffirm the extent of the bear market India is going through. I know a lot of people would think I looked at some other screen since the Sensex was up 400 points and the Nifty rallied 100 points. But to me the internals matter – and the internal that stood out yesterday was FIIs selling Rs 1278 cr in cash markets. This is more selling than they have done on really bad days.

I raised this point yesterday during my show on CNBC-TV18, before this data was out – if you are a bull you don’t want to see FII net sell figure on a day like yesterday, and that’s precisely what happened. So essentially, in a shallow market, the FIIs are now selling on any good day, and yesterday was as good a day as any with so many large caps rising 4-5% or more in certain cases.

Refer to my last post where I spoke of the market mayhem and raised the possibility of FIIs selling in the last remaining safe bastions. That’s starting to happen – so far FIIs have been protected with their investments in IT, Pharma and to a certain degree some FMCG names, but the currency is fast eating whatever limited gains they have made. And this is in a relative world, where the US markets are trading pretty close to all time highs and investors have options to park their money somewhere else.

Now, next week assumes extreme significance. The bears are in firm control and they have so much ammunition at their hand that any rallies like yesterday would give them fodder to feed on, in this case bull’s meat to feed on. Also, look at the options data in non conventional way – the way deep out of money August Puts have added Open Interest, yesterday clearly looks like another bear trap.

I know the market is deeply oversold and almost everyone is bearish and normally that’s the signal of the bottom. But the last stage of bottom formation is always the most painful and results in most wealth erosion for bulls. That may just be around the corner.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation. All views expressed in this blog are my personal views and my channel does not subscribe to the same.

Monday, August 19, 2013


So finally the market is capitulating. But what really is happening out there? Who is selling and what should the market be weary of?

The internal that would worry me the most is that FIIs have actually invested $12.7 bn in cash markets this year. And the Nifty is down 8% despite that. In fact the Dollar Nifty is down 16% year to date. Where exactly has this money gone and what happens if even 10% of this money has to go out?

Well let’s look at the Nifty internals. You would be amazed that only 8 Nifty stocks are in the green this year, but those who are have actually been money spinners. For example, at number 8 is ITC with 9% gains, HUL is up 12%, Dr Reddy’s 17%, Lupin 28%, Infosys 30%, Sun Pharma and TCS are up 40% and the biggest of them, HCL Tech is up over 50%

On the other end of spectrum, the 42 Nifty stocks that have fallen – 33 of them have fallen more than 10% - within that 15 have actually fallen over 30%, 7 over 40%, 2 over 50% and a poor soul by the name of JP Associates nearly 70%. And I am not going into the Nifty Junior and midcaps because you know what’s coming there.

So with some of the erstwhile FII favourites likes SBI, BoB, L&T, ICICI Bank decimated, the key concern should now be what happens to the likes of IT stocks and the pharma stocks. And if that has to happen, will it finally lead to an FII exodus. Keep in mind, even if this market was flat, an FII would have seen 8% erosion purely because of currency.

The other angle that’s scaring me is the absolute low levels of cash market volumes and hence the depth of the market. 96% turnover is being generated in the derivative market with lion’s shares coming out of Index options, which has become a gambler’s den. Even if someone has to sell $10 m of stocks, that would lead to big price damage. Factor this, on Friday, FIIs sold less than $100 m in cash markets, DIIs more than bought that and still the Sensex ended with near 800 point collapse.

And while the consensus is that this market is only headed down, that has been the consensus for some time now. And when a consensus trade is so right, sometimes the bravado of approaching the market with contra views an be painful, unless of course you have deep pockets and a really long term view. Somehow the internals of the market and most importantly the ticker is telling us that there is more to come.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation. All views expressed in this blog are my personal views and my channel does not subscribe to the same.

Monday, July 15, 2013


Intriguing headline right? LIC, the biggest institutional investor of Indian equities a savvy trader? Well that ladies and gentlemen is the fact and the institution has proved it so right with the biggest of blue chips – Infosys and this despite remaining essentially a large long-term shareholder. So what am I saying?

Let’s take a look at LIC’s investments in Infosys over the last 3 quarters and try to see what it is up to.

At the end of December 2012 quarter, LIC held 4.16 cr shares of Infosys representing 7.2% stake. By the end of March quarter, this was down to 3.42 cr shares representing 5.96% stake and in the just released June-ending quarter, its gone back up to 3.86 cr shares representing 6.72% stake. What’s the big deal you would ask?

The big deal is that by cutting its stake LIC part protected itself from that ill fated 22% fall Infosys had after Q4 results and by buying after that fall, it managed to participate in the rally that followed, especially the 10% thumbs up stock got after Q1 results. Let’s try to put some numbers here.

LIC sold 74 lakh shares between December to March. Stock moved between Rs 2700-2900 during that period– so let’s assume an average price of Rs 2,800 for that period. After Q4 numbers, stock collapsed to Rs 2,300. And with an average price of Rs 2,200-2,400 for the quarter, let’s take the average price of Rs 2,300 for the quarter in which LIC bought 44 lakh shares. And now of course, the stock is back to Rs 2,800

So just for those 44 lakh shares, LIC managed to sell at highs and buy at lows with a difference of Rs 500/share – that translates into Rs 220 cr of trading profit. Keep in mind LIC is a long term shareholder and would have paid no tax on the shares it sold and the shares it acquired last quarter for sure will again be held for long time.

Of course, LIC had its own compulsions last quarter as I had written here – it had to raise money for the plethora of PSU paper that hit the market, but let’s give credit where it’s due. It managed to play a counter consensus trade successfully for 2 straight quarters. And that’s the whole premise – even if you hold a share with a very long term horizon, sometimes a minor churn or tweaking in portfolios isn’t a bad idea

Thursday, June 20, 2013


This will be a short note as this is what’s there on top of my mind.

So markets are selling off because the fed chairman believes the US economy is recovering and hence by next year would not require the injection of liquidity. But the markets are sulking – and are throwing fresh tantrums like a kindergarten kid would if a toy has been taken away.

So what exactly do these financial markets players want? They just want easy money at near zero interest rates, so that they can play with these dollars in various markets with a knowledge that if they lose this money, the big daddy will give more – and if they make gains out of that, they will sound and look intelligent and take away fat bonuses, while a normal labourer/cobbler/driver fights inflation and works his normal 14-hour shift daily to earn his family a meal.

Make no mistake, the financial markets all around the world are in a mess. Gone are the days where fund managers would require hours and days and months of hard work to arrive at individual stocks that will generate alpha – Right now everyone from an FII to an insurance company to a mutual fund is a trader who can’t look beyond the next 3 months (with some exceptions of course).

The whole world had been watching for how the US bond yields had been moving. The US bond market is the savviest market of all asset classes. This market was for long telling us that Bernanke’s dollar printing has run its course. The market should have prepared for this event. What the bond markets had also been telling us is that we need real economy growth and not just dollar supply for markets to rally.

Now what about India? The Indian authorities are in absolute denial mode. It’s worse than an ostrich who drags its head into sand hoping the hunter hasn’t seen it (which by the way is a myth, ostriches don't do that). Last week, they approved hiking FII limit in Government securities (In a week when FIIs sold over $3 bn Indian Govt bonds) and yesterday they announced conducting an auction for G Secs. I mean, I really want to know what kind of drugs are some of them consuming.

Now while twitterati and BBM groups have been swamped with jokes on how India is back into the 1990s, yesterday a very respected economist raised a big red flag saying India is actually back into the 70s low growth, low employment rut.

The growth is sub 5%, currency is almost 60, we are producing millions of engineers and MBAs every year with no real jobs and there is very low likelihood of the economy bottoming out. Worse still, going by the recent cabinet expansion, it doesn’t look like economy is anywhere on top of Govt’s agenda.

There is a saying that dawn is closest when its darkest, unfortunately there is no way of knowing, how much darker can the night get in India right now.

Tuesday, April 30, 2013


The voluntary open offer from Unilever for shareholders of Hindustan Unilever is easily the most significant development for Indian market. Make no mistake, its way bigger than a petrol price decontrol, or allowing FDI in retail or anything where you may have heard lot more noise. What we should not do at this moment is to belittle this deal by talking about valuations, acceptance ratios and punting on what it means for other cash rich MNCs and their Indian arms.

Just think about it, Unilever is willing to put $5.4 bn cash to work, just to increase their stake in Indian arm to 75% and be rest assured, they won’t get all they want at Rs 600/share and they may at some point make a higher offer which we cannot speculate at this point. (By the way, the promoters of Saint Gobain and Fresenius Kabi should note this development and not dither over what is loose change)

What should an investor of HUL do? While the HUL stock is at life time high, this does not take away the fact that the stock would still rank as an underperformer if you invested in the stock 10 years back.

You will be amazed to know that despite all its massive outperformance in the last 3 years, only 3 index stocks have underperformed HUL over the last 10 years. While HUL is up 190% in last 10 years, only Hindalco, Reliance Infra and Ranbaxy have given lower returns if you take data from February 2003, which is when the great Indian bull market actually started.

During these 10 years, Sesa Goa has become 82 fold, Lupin 47 fold, Kotak Mahindra Bank a 40 bagger, and Axis Bank a 30 bagger. Ok, let’s agree that some of them have not been the part of index for 10 years and have only been added after significant outperformance. So look at peers, who have been in index for long. M&M is a 30 bagger, L&T a 15 bagger, Tata Motors 8 bagger and even the closest competitor ITC has been a 14 bagger. Of course all these stocks have had their triggers over last 10 years in terms of economy and individual company issues.

Unilever clearly is not doing this for charity, nor is it doing this because it thinks it owes it to shareholders. No way, it is doing that because it is betting on the much larger theme, which is the Indian consumption story. And while we may keep debating how expensive stocks look in the consumption basket, as the past bull market has shown, the market can make absolute mockery of near term valuations when it gets in the mood to reward a particular sector or a stock.

Friday, April 26, 2013


Are these MNC promoters coming out with a clear message? Give us your shares at our price, else we will short change you, and not even give you the current market price and the Indian merchant bankers will help us short change the Indian shareholders?

Since I got a lot of feedback on Fresenius Kabi, here comes the next important issue on the radar. Just look at how the minority shareholders of Saint Gobain Sekurit are being treated. Again, all of this is done within the letter of the law, but the spirit is nowhere to be followed.

Just a backgrounder – In 2012, the promoters of Saint Gobain Sekurit came out with a delisting offer and indicated a price of Rs 31/share as acceptable to them. The discovered price, to their horror was Rs 90/share and even at that price, not enough investors tendered and hence the company rejected the delisting. Of course, even the shareholders got greedy and may be Rs 90/share was not the right price for Saint Gobain but what they are getting now is clearly not the right value. 

Now look at what's happening. The same promoters have another company called Grindwell Norton (which is much bigger in size) and now they are merging the 2 companies. But the merger ratio leaves so much to be desired.

A simple stock price related swap would have meant 1 share of Grindwell for every 11 shares of Saint Gobain. Even in terms of sales, Grindwell is 9 times bigger than Saint Gobain. And in terms of market cap, Grindwell is 7 times Sanit Gobain. But look at the merger ratio – 17 shares of Saint Gobain are needed for a small mercy of 1 share of Grindwell Norton.

Simply put, if you have shares worth Rs 380 of Saint Gobain, you will get a share of Grindwell worth Rs 255. That’s a loss of 33%, technically the share of Saint Gobain is now worth Rs 15/share. It’s the same company, where the promoters were happy to delist at Rs 31/share.

And more importantly it does not end here. The merger process also involves merging 2 unlisted companies with Grindwell Norton and you don’t need knowledge of rocket science to know that these 2 companies should be promoter entities and look at the merger ratios here

For every 1 share of unlisted Saint Gobain Crystals, you get 2 shares of Grindwell Norton and for every 1 share of unlisted SEPR, you get 2.6 shares of Grindwell Norton. So technically, the assets of Grindwell Norton are being distributed among the shareholders of unlisted companies while the minority shareholders of the listed entity are being given the loose change.

In the listed Sanit Gobain Sekurit, the MNC promoters own 86% stake with no institution holding and the balance 14% stake is with small shareholders. In Grindwell Norton, promoters own 58%, has large institutional holding with both domestic mutual funds and FIIs listed as shareholders.

Do the promoters of Saint Gobain Sekurit have absolutely zero regard for the minority 14% shareholders of the company? It’s a 200 crore market cap company so 14% represents a princely sum of Rs 28 crore. Why can’t they be fair to these small investors? Or is this the new way of MNC promoters bullying small shareholders and telling them – it’s either our way or highway.

Wednesday, April 17, 2013


Fresenius Kabi! Rings a bell? It should, it was the first company that burst the bubble of MNC delisting hope story by opting for an offer for sale to reduce promoter stake. Basically, according to SEBI guidelines, promoters need to either cut stake to below 75% or delist the company. Fresenius Kabi had 90% promoter stake and was on top of the list of punters taking bets on top dollar delisting price.

Now take a look at the set of events. The stock first doubled from 85 in December 2011 to Rs 170 by April 2012 on hopes of deslisting. Then, the promoters opted for an OFS instead of delisting and the stock fell to Rs 80. The OFS took place at Rs 80 but what was interesting was that a large chunk of OFS was subscribed by 4 merchant bankers. RBS Merchant Bank subscribed 30.5 lakh shares, Macquarie bank 29.65 lakh shares, Morgan Stanley 25 lakh and Nomura another 23 lakh for a total of 1.08 crore shares.

Now this is not illegal, and at no point am I accusing any of the entities here but look at what the company is doing now. Its come out with a voluntary delisting offer with a floor price of Rs 130/share. I am not in the business of predicting these developments but if all these merchant bankers do tender at 130/share, that will go a long way in the company being delisted. Remember, with the current float of 19%, the company now only needs 9.5% stake to delist and keep in mind, it did an OFS of 9% to cut stake from 90% to 81%. Do the math here. Its far easier for company to accumulate 9.5% after having given 9% stake in an OFS to select entities than it was to garner 5% when the public float was 10%. And I won't be surprised if all those who were allotted shares in OFS actually do tender in delisting offer.

This stock was seen as undervalued at 180/share when delisting buzz was alive. Just imagine, what a daylight robbery it would be if indeed the promoters manage to delist the company at Rs 130/share. Is there anyone looking at the plight of minority shareholders? This is all being done within the law, but sometimes spirit of the law is ignored in just following the letter of the law.

My other fear is that once this delisting is through, this will provide perfect precedence to some other promoters on how to delist the company at throwaway prices.

Friday, April 12, 2013


Let’s be blunt here. Infosys is not the respected company it has been. It does not deserve to be called an IT bellwether anymore and clearly the current management is absolutely no patch on the kind of leadership it had some years back.

Just imagine this kind of performance under Nandan Nilekani and Mohandas Pai. Even if they would have come with an occasional shocker, they would stand up to tough questions and not stand behind the comfort of their own corporate communication manager asking them silly and easy questions.

Look at the guidance. 6-10%. Why not 2-14%? That also has same median or even 0-16% for that matter? Let’s be clear here – Infosys guidance has ZERO meaning for the market now. It does not respect the current management and it should not do it in near future too.  And they haven’t declared EPS guidance because they have no clue on what will be their pricing, margins or anything for that matter. And what will be amazing? Expect TCS and HCL Tech to rub salt into their wounds over next 2 weeks by maintaining their standards (just like Infy maintained its standards).

And one word for the analysts too who keep saying this is a great, under-owned stock. Under-ownership? What under-ownership. The FII holding is at multi-year high, mutual funds have not sold much. The only selling has come from LIC and insurance companies which had their own reasons as I wrote in my previous blog.

But, my apologies to LIC – they turned out to be the smartest investors, even if it’s by default. They sold 80 lakh shares at around 2900 Rupees (something which the stock will not hit for at least 2 years)

Nine months back, I turned positive on Infosys. I had a strong feeling that it was coming out of a rut and a patch of outperformance was coming. I was right for last 9 months but today’s event has changed it all. The company has revised the clock backwards by a good 2 years and whatever confidence it built over the last 6 months has been destroyed.

Be under no illusion of stock finding bottom at 2300 or so. For me even if you assume an EPS of Rs 170 for Infosys, you should apply a multiple of 10-11x because this is now just another midcap kind of volatile companies which we have plenty of in this market. The stock doesn’t deserve to trade above 1700-1870 given the circumstances.

Tuesday, April 9, 2013


Its Earnings season again, and as usual, companies are reporting the shareholding pattern changes to the exchanges and this gives data hungry people like me some fodder to feed on. So let’s get started. Of course, this is still early stages and we will get more data as and when more companies come out with this mandatory requirement.

Around 10 of Nifty 50 companies have reported this data so far and to me, what really stands out is the kind of selling LIC has indulged in.

LIC has sold nearly Rs 3,000 crore of their investment in 6 Nifty stocks – Infosys, HDFC Bank, HUL, Cairn, BHEL and Bank of Baroda. To be fair, out of these, it has actually added investments worth Rs 540 crore in India

The largest selling from LIC is in case of Infosys. The corporation has sold 80 lakh shares in April-June quarter worth Rs 2,200 crore. Of course, they made a bit of killing on it since the stock came out of a bit of a bear market post its earnings and had a one way rally from Rs 2,200 to around 2,900 and LIC had been accumulating some of these shares at very low prices.

LIC has also sold nearly 1.4 crore shares of HDFC Bank worth Rs 260 crore; 1.3 crore shares of HUL worth Rs 650 crore and as I mentioned earlier, has bought 1.8 crore shares in Cairn India worth Rs 540 crores.

What really stands out is LIC action on BHEL and Bank of Baroda. The corporation has sold shares worth Rs 400 crores in these 2 underperforming PSU stocks.

Now, like everyone else, LIC is in stock markets to make money, preserve profits and cut losses – so nothing sinister in it. But then, you associate LIC with really long term investing, especially in blue chips and any kind of selling will attract suspicion – more so with the market being so dependent on institutional flows.

The big question is – would LIC have still sold so much in secondary market if it didn’t have to face an aggressive Govt calendar of PSU divestment? And this question becomes important at a time when LIC is actually pleading with regulators to remove the 10% cap on company specific investments

Tuesday, March 12, 2013


If you thought Monday’s FII action in derivatives was eye popping, Tuesday would make you fall off the chair. While on Monday, FIIs net bought Rs 2,200 cr worth Index options (mainly Nifty) with Open Interest  going up by 73 lakh shares; On Tuesday both these numbers almost doubled with net buying of Rs 4,000 cr along with an addition of a massive 1.5 crore shares in Open Interest

What really stands out on both days is the massive Open Interest build-up at deep out of the money strikes. For example, in Tuesday’s trade, 5600 Put added 26 lakh shares while 5500 Put added nearly 15 lakh shares. For an index, which is trading above 5900, we are talking about strikes which are a good 5-7% off current levels with a relatively short series (only 11 days left in current series)

Tuesday also stood out in terms of futures data from FIIs, with a net selling of nearly Rs 500 cr and an Open Interest build-up of nearly 6 lakh shares. For the first time since budget, we have seen short positions in Nifty.

Now, what does this data mean? Well it could mean 2 things – first, some FIIs are buying in cash markets but given last month’s experience, they want to be completely hedged. And second, some FIIs have taken directional call on the Nifty with a view that the short covering bounce is mostly done with and an inherently weak market would now complete its logical move towards the 200 day moving average. If it’s the first case, that’s as healthy as it can get for the market since over-hedged markets would normally inch higher. But if the second scenario plays out, it may actually make February look relatively better.

What was also interesting on Tuesday was the sharp intra-day recovery between 1:30 to 2:30 and an equally sharp drop again between 2:30-3:30. There is an old saying “Amateurs open the market and professional close it”. Normally if a market closes near day’s low, it tells you that professional traders are happy keeping their shorts overnight. What was also interesting was that the last hour selling was not accompanied by added weakness in global markets. In fact, European markets had turned in the green.

Keep in mind the market had a crunching 7% fall from its February high of 6110 to the budget day low of 5670. That’s a total of 440 points. At Monday’s high of 5970, it had reclaimed 300 points out of that. We all know that bear market rallies are sharp and at times give an impression that a new bull market has started. But until the Nifty crosses 6,000 and makes a move towards previous peak, this just remains a sharp pullback in a structurally weak market. One thing is certain; the screen is not looking comfortable, especially for the high beta midcaps and to me last week remains a sucker’s rally. I would be happy to change my view if the Nifty rallies this week.

Disclaimer: I reserve the right to be wrong. If I was always right about stock markets, I would own some island in Caribbean.

Wednesday, March 6, 2013


The word on the street is that the worst is over for Indian markets. Budget coinciding with expiry was seen as a climatic event with selling reaching its exhaustion. There are a few data points which actually support that view.

First, the market has found support at budget day lows and for last 3 days has been closing at day’s high. Secondly Nifty has rebounded from the mid-point of its 100 and 200 DMAs (daily moving averages). Then of course, the midcap screen is looking much better than it had looked all of February.  And the most important one, the pullback from budget day low has been led by Bank Nifty and strong banking stocks which leads one to believe that the market may be a bit more constructive. Even on the F&O side of the market, the Nifty futures have kept pace with the spot and are trading at decent premium. And while stock futures have shed nearly 10 cr shares in Open Interest over last 2 days, that’s only because of NHPC. Excluding NHPC, stock futures have actually added Open Interest.

However, one look at Tuesday’s FII number would suggest that something is amiss. The way Reliance, TCS and ICICI Bank rallied on Tuesday, I was expecting to see an FII buy number of over Rs 1,000 cr. But the number is actually Rs 220 cr. On top of that, DIIs actually sold Rs 245 cr. On a net basis, institutions sold in cash markets. There was no great buying in the futures markets either and that’s where I get most of my cues.

There was big buying by FIIs in Nifty options and if you see the build-up, it was mostly in Puts. Now conventional wisdom would suggest this is Put writing and hence positive for markets – the texture of the market over last few months has changed with a bias of buying options rather than selling them. Even individual stocks are not giving the comfort that they could be bought again.

Also, let’s keep the global setup in mind, the market has been underperforming the globe this year. While most markets are near all time high with US markets actually right there, the Indian market is still a fair distance away from that. The rupee market has not stabilized at all and is giving an indication that a move towards 56 is on.

So the big question – how to trade this market? The best strategy would be to identify weak stocks and keep building your shorts at every minor pullback. Some examples could be the likes of IFCI, Unitech, HDIL, IVRCL, Welspun Corp, Adani Power. Now keep in mind, some of these stocks could have big intra-day bounces and hence the best way to play these stocks would be via Put options, which are very liquid in most of these stocks. As for Nifty, you should ignore the first 3-4 days of a new series in determining a trend, which would emerge next week. My sense, looking at the internals is that another wave of selling is coming our way and the Nifty may head towards 5550, where the mother of all support of 200 DMA comes in.