Posts Tagged ‘Reliance Industries


Coal India: India’s most valuable company

Coal India became India’s most valuable company by overtaking Reliance Industries. Four years ago RIL became M-cap leader by toppling ONGC. Coal India had announced its Q1 results on August 12. Results were above estimates with consolidated PAT increasing by 64.1 percent to Rs 4144 crore. After Q1 result, Coal India rallied sharply to 400 odd levels.

I saw this as an opportunity to write Coal India calls. In this volatile market environment, PSU giant stock has been rock steady and acted as a defensive. But to think that Coal India will move another 12% from current levels would be too much. New draft mining bill, according to which coal producers would have to share 26% of profits with local people, will continue to be an overhang on Coal India stock. Although some of this would be passed onto buyers as price increase. With this thought I wrote September series 440 call. This call will yield 11.36% in 41 days. I am not saying that Coal India will fall from these levels nor will it increase substantially. I can write puts as well but in this volatile market I shall refrain myself from writing naked puts (When I wrote Nifty puts, I bought protection through higher level puts).


Waiting for new opportunities..

July series has been one of my best till date return wise. ONGC and Sun TV panned out as expected. Premiums have come down to near zero levels and I have started covering my positions.

I have started looking forward to August series. It should be much more challenging than July series.  I am waiting for some event or trigger point to happen so that I can start initiating trades for next series. Given the problems around Euro-zone, it makes sense to wait for favorable risk reward ratio rather than chase events. In case Mr. Maran is named in CBI charge sheet for 2G scam, Sun TV might have one more down move. It should be an opportunity. If one of the biggies announce poor results, that should also be an opportunity to write some options.

I wish HDFC had announced poor Q1 results. But results were good along the expected lines. I don’t know how do they manage it, but they have consistently delivering 20-25% growth for past 30 quarters. HDFC has become the benchmark of consistency in Indian markets. Almost every FII or DII has exposure in HDFC. In case of poor results, HDFC would have provided good opportunity in terms of writing options. Reliance Industries is trending downwards and is currently trading around 870 something. Lot of issues like gas output, CAG adverse report and more importantly lack of clarity has hampered RIL stock. In case cabinet approves RIL-BP deal, RIL stock should see 5-6 percent positive reaction. As of now, its difficult to write both calls and puts in RIL. ONGC will come out with FPO in september, with or without clarity on subsidy sharing formula. I am not sure if without clarity on subsidy sharing, ONGC would get a price of more than 240-250. But deferred FPO should throw up some opportunity in August series. Infosys came out again in Q1 with sub-par results. I think more than Q1 results, not scaling up of Annual guidance spooked the markets. In contrast TCS Q1 results were above market expectations. Both Infosys and TCS present opportunity in OTM calls. I need to track result season carefully for next trading idea.

(Yesterday while booking tickets for Zindagi na milegi dobara, I felt very happy while seeing seats full tag. As a shareholder of Eros International, I have every reason to be happy. I will watch the movie today. If you have not seen the movie till now, please go and watch it.)


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)


Interesting times ahead..

All the news flow makes case for interesting and tough times ahead. US Dollar Index rose  by 1.7% yesterday (the largest single day gain since Aug’10), resulting in all risk assets falling sharply, including crude oil. Why USD Index rose is a bit confusing for me, since report after report shows that US growth on life support system by QE is slowing. Yesterday, Federal reserve bank of New York manufacturing index dropped to its lowest level since November last year. Part answer of USD Index rise could be trouble in its biggest constituent, Euro (57.6%). It is like a tussule between who is weaker between Euro and US.

Indian market should be happy with commodity sell-off. There might be some knee jerk negative reaction, but if crude keeps falling it should be good news for the Indian market. Another major concern, Interest rates should be nearing its peak after RBI  rate hike of 25 bps today. Is Indian economy slowing down sharply? Yesterday some of advance tax numbers did not give evidence to that. Infact advance tax numbers from top 100 companies in Mumbai region has increased by 14 percent.

As option writer, what does all this news flow means for me. Lot of major stocks RIL, Tata Motors, SBI, Maruti and ONGC are looking weak and they have already come down quite a lot. Its difficult for me to write any OTM calls since premiums are low and also there might be some rebound from oversold zone. Normally I don’t write puts and in this global turmoil I would be very cautious in doing so. Except for some oversold stocks like Reliance communications, I won’t write puts. Can’t do much at this point of time except wait and watch..Anyways for June series all my margin money is blocked in existing contracts.

July 2018
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