22
Jul
11

Crompton Greaves : New Opportunity

Finally after some time, Crompton Greaves presented me with an opportunity. Q1 FY11 poor results, selling of shares by outgoing MD and curious case of expensive aircraft purchase, all led to sharp fall in company shares. In 2 days, crompton shares have fallen close to 30 percent leading to wealth destruction of 4200 crore.

I think the problem with the stock was of over ownership, primarily institutions. Crompton greaves is in a lot of MF and FII portfolio. Poor results in over owned companies usually trigger sharp reaction. Infosys has seen milder version of this kind of reaction for the last 2 quarters. In Q4 FY10, when crompton greaves announced poor results, brokerage results said it was one-off event and company would bounce back. Everything was beautifully summed up on moneycontrol (http://www.moneycontrol.com/news/news/crompton-greaves-everyonedenial-mode_567180.html). I have started selling OTM calls of crompton greaves. I don’t think company shares will rise 30-40% from these levels in the next one month. Lot of shorts have been created in last 2 days, so there might be bouts of short covering.

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