Posts Tagged ‘Government of India


Currency Options USDINR: December series

November series for USDINR options expired on 29th November as expected. In last week of November, Rupee made a dash towards 56. I don’t have a large position on either side in this series.

Given stalemate on US fiscal cliff situation, INR remains vulnerable to any global risk off trade in December last week. On the other side, Government of India (GoI) has become proactive on reforms front. If GoI is able to pass increase in FDI limit in insurance & pension, Banking act in last week of winter session of parliament, then Rupee should find support and even rally. Last week, GoI passed Land acquisition bill, Cabinet committee on Investment board (watered down version of National Investment Board) under PM. SP & BSP, who had supported GoI on FDI vote in retail (direct and indirect), are at loggerheads in Parliament on reservation in promotion for SC/ST. Government will find it tough to pass anything in Parliament on account of this logjam. On 18th December, I don’t expect RBI to cut interest rates. There might be 25 bps cut in CRR, but not in repo rate.

Last week of December should be a good time to build some position for January series. I don’t expect Rupee to breach its previous low of 57.37 in December & January.


Happy New Year..

Happy New Year to everyone. Hope 2012 brings in some sanity in equity markets after 2nd worst performing year in last two decades. Last year brought in lot of negatives from Euro zone countries and more so from our own government. India’s fiscal deficit for current financial year is all set to exceed its budgeted estimates of 4.6%. But 2011 has been such a bad year that 2012 might turn out to be positive year for equities. ECB might finally relent and buy european countries bonds in a big way. Expectations are also so low from Indian government that some action on reform front might act as signal and trigger decent rally.

One of the biggest positive that almost everyone is negative on markets and it always happens that market surprises everyone on opposite side. I remember in 2011 also lot of analysts used to say second half of the year should turn out to be better than first half. In fact, markets went into tailspin in second half. For 2012 also there are similar kind of predictions that 1st quarter will be bad and later part of year should be better. I made money in 2011 by selling OTM calls, but selective stocks and market in general has come down to such levels that I am little bit cautious on selling calls now.


ONGC follow up..

In one of my earlier post, I had mentioned about writing ONGC 240 puts for July series. There have been few positive developments for ONGC in terms of Cairn-Vedanta deal pre-conditions imposed by Government of India (GOI). As expected GOI has made royalty payments cost-recoverable as one of the pre-condition for approving the deal. It is difficult to say if the arm-twisting by GOI is correct and whether it would deter FDI in E&P sector in India on account of such ad-hoc policy changes. There was good article in BS on the same,

Someone on CNBC-TV18 commented, it looks like everybody in the GOI is working overtime to ensure success of ONGC Follow-on-Public Offer (FPO). One concern after other are getting resolved for ONGC and decks are being cleared for its FPO. Still one of the biggest overhang for the company, subsidy sharing formula is still pending. I think in a week or two clarity on the formula should come from GOI.

If one looks at ONGC July & August future contract prices (Rs 7 discount), it becomes quite clear that market is expecting ONGC FPO in August and not in July. I wrote some more ONGC July series 240 puts.


Reliance: Corporate governance, Gas output and more…

With the highest weightage on Nifty and Sensex, RIL movement has large bearing on both indices. Last week, RIL touched its 2 years low, its Market Capitalization (M-Cap) fell below Rs. 3 lakh crores and it was no surprise that it dragged Nifty below 5400. In last one year, RIL has underperformed benchmark indices Sensex and Nifty.

Recently, the Comptroller and Auditor General of India (CAG) report said that the company was shown undue favor by the Director General of Hydrocarbons (DGH) in Krishna-Godavari (KG) basin. DGH allowed RIL to raise its Capital Expenditure (Cap-ex) from $2.4 billion to $8.5 billion in years 2004-2006. This impacted Government of India (GoI) revenues on account of lower profit share it received from KG basin. RIL is widely tracked stock and held widely across domestic and foreign institutions. CAG report has raised concerns among FII’s with lot of them opting to sell the stock. Most disappointing part is that there has been no denial or clarification from the company about CAG report.

Till now, RIL was struggling to ramp up gas production with output plateaued at 55 mmscmd, much lower than expected 80 mmscmd. One wonders if government refusal to raise regulated prices of $4.2 per mmbtu is the reason of technical difficulties in KG basin. Now RIL is also pressurizing government to approve RIL-BP deal saying that it needs BP technical expertise to ramp up gas production. Huge cash pile in its balance sheet and its deployment is also putting pressure on RIL stock. Not many investors would be enthused by the fact that the cash is getting deployed in unrelated ventures.

With so many subsidiaries, lack of disclosures in its balance sheet, RIL track record on corporate governance has always been shady. Despite all this, not many brokerages have downgraded RIL stock. Part reason could be attractive valuations. Given all the uncertainty around the company and  Euro-zone, it is difficult to initiate any kind of trade in RIL. Call IV’s have come down sharply and puts might be highly risky to write currently. One trade I am looking forward to is writing 700 put in July series. (Difficult to imagine RIL falling by another 17-18% in next one month)


Why Congress government rocks..

Yesterday, I read an article on Kirtan’s blog ( on politicians. Sometime back, I used to share same level of frustration about politicians but not anymore. As an option writer Indian government is my best friend because they allow me to play on time decay. They will never be able to take any decisions and even if they will, it would be too late in the day. As per congress government, it is extremely difficult to decide on what is of  national interest in Cairn-Vedanta deal. After several months of delay, they are yet to decide on the deal with ball moving from GOM to CCEA and back. I could easily sell Cairn India 320 Put in April with confidence that government won’t take any decision soon.

The Government is too busy with Baba Ramdev and they don’t have time to decide on diesel price hike. One can easily create short strangle in Oil marketing companies. I haven’t done that, since my plate is currently full with Sun TV, R Comm, Tata Motors. After destroying investors wealth in Oil marketing companies, government is all set to do the same with ONGC by increasing its subsidy share just before Follow-on Public Offer (FPO).

They still cannot decide on the best way to dilute stake in Public Sector Units (PSU’s). FPO has become a dreadful word which, if associated with any PSU, becomes target of bears and option writers like me. I don’t think FPO is the best way to dilute stake in PSU’s with government not getting best possible value. I made money by selling SAIL 180 Call in May, 160 Calls in June. I missed the chance in Power Finance Corporation (PFC).

When UPA got clear mandate in 2009, market gave it a big thumbs up by rallying 10% plus. Market thought, with comfortable mandate, government would be able move faster on reforms. After 2 years, we are still waiting for any kind of reforms with many important bills pending. With BJP ruled states opposing, one important tax reform Goods and Services Tax (GST) can’t find its way. GST has the potential to add several bps to India‘s GDP growth. Next 1-1.5 years is the best possible window for government since as they go into the election mode.

Our Finance Minister(FM) still says investors should not be negative on India. I agree, but that would be because of private companies and not the government. I wish the government was a listed entity then one could have entered into Pair Trade (Short government, Long private corporations). Congress government rocks!!!…please keep adding some more scams to your already long list!!!!

February 2019
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