Posts Tagged ‘Fiscal deficit

03
Dec
11

Coal India news update..

In Today’s BS there was a news article on Coal India selling higher amount of coal at e-auction prices (http://business-standard.com/india/news/coal-indias-profit-earning-strategy-turns-aggressive/457427/). This has obviously helped Coal India limit revenue loss despite its inability to ramp up production in first half of current fiscal. Although, the PSU giant has been able to ramp up production in November and will hope to maintain the same in December (http://www.thehindubusinessline.com/companies/article2675260.ece), I am not sure if sixth pay commission wage revision issues have been sorted out between workers and Coal India management. If not, then this issue will limit upsides in share price. Also there is increased risk that workers can go on strike if issue is unresolved.

If Indian government has its way, Coal India will be robbed off of its cash reserves very soon. GoI has been trying hard to find ways to generate Rs 40000 crore divestment target and 4.6% fiscal deficit. Coal India with its large cash reserves becomes a soft target. I don’t think this is right and it should not be allowed to happen. Coal India should be using its cash for making acquisition and buying overseas assets at a time when it is not able to ramp up its production. But as always, government does what it wants to do.

During 3rd week of November along with Nifty, Coal India also fell to its 52 week low. I had sold some December series 260 puts. It was absolute panic time. I have started covering my puts. In case Nifty rallies some more from here, then I might think of selling some Coal India calls. But as of now it is wait and watch in case of Coal India.

06
Sep
11

Its ONGC again..

In some of my previous posts, I had criticized government for pursuing FPO programme. But it seems that with lagging behind schedule on divestment programme, government is keen to dilute stake in ONGC. PSU giant filed for RHP with SEBI yesterday. As per reports, issue is expected to open on September 20 and close on September 23. Issue proceed will help government to do some patchwork with its Fiscal deficit. Clarity on subsidy sharing formula could have helped fetch better FPO price, but government has political compulsions.

Due to FPO overhang ONGC share price had range bound movement for past several months, 290-295 being the upper limit and 260-265 was the lower limit. At the start of September series, I had sold ONGC 320 calls. But now with FPO scheduled to come in next 15 days, its share price movement should be restricted between 240 and 280. I have sold ONGC one 240 put and two 280 call (in 1:2 ratio). Not exactly strangle and I am not sure what would you call this strategy. In this strategy, I will make loss below 232.5. I am expecting FPO price between 240-250 with 5% discount to retail investors. I am confident ONGC share price will not cross 280 in this series but I am not sure about lower limit. FPO price will decide lower limit. In case FPO price is less than 240, I will go long and buy its future.

ONGC FPO Option strategy

Overall I am bullish on ONGC. In case of any sharp fall in market across the world, crude will also fall and PSU will benefit from it. It is difficult for me to imagine ONGC falling substantially from current levels. Among all the analyst tracking ONGC, not even one has sell rating and overwhelming majority (more than 80%) has buy rating on it (average price target more than 300).




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