MUMBAI: Traders and investors in Reliance Natural Resources, or RNRL, watched in dismay on Monday as more than a fourth of the company’s market capitalisation was wiped out in what is being seen as a strong response to an unfavourable share-swap ratio with group firm Reliance Power.
The stock crashed 27% to close at Rs 46.40 as investors reacted to Sunday’s announcement that shareholders of RNRL would get one share in Reliance Power, also controlled by billionaire Anil Ambani, for every four shares they hold in the natural gas supplier. Most RNRL shareholders and analysts had counted on a swap ratio of one share of Reliance Power for every three they held in RNRL.
RNRL’s fall on Monday figures high in the list of stocks that have been pummelled the most in a single trading session. Realty firm Unitech is perched on top with its stock having slid 51% in October 2008 followed by Chennai-based pharma company Orchid, which slumped 39%.
Brokers say the stock could be under further pressure in the near term as many traders have heavily short sold the July futures. In short selling, an investor or trader sells a stock he does not own, betting on buying it later when the price slides.
Interestingly, the outstanding positions in RNRL July futures declined 7% while the futures closed at a premium of Rs 0.15 to the spot price. According to market participants, this indicates that many traders had squared off their short positions by purchasing the falling futures. They added these traders would have short sold the futures last week, in anticipation of an unfavourable merger ratio.
'RNRL shareholders stand to gain'
These traders are upset at what they reckon is an attempt by promoters to place their interests ahead of minority shareholders. Promoters control close to 85% in Reliance Power, and about 55% in RNRL.
Reliance Power CEO JP Chalasani told television channels that RNRL shareholders would benefit in the long run because of their exposure to the generation portfolio of R-Power.
More @ Shell-shocked investors dump RNRL
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Analysts' corner
Trading desk
BHARTI AIRTEL
Current price: Rs 267.5,
Target price: Rs 275
The stock seems to have made a mini upside breakout and it should have a target of Rs 275 on Tuesday. Keep a stop at Rs 265 and go long. Add to the position between Rs 269 and Rs 270. Start booking profits above Rs 274. If the scrip can close above Rs 275 on Wednesday, it will have a potential upside till Rs 285. This is worth bearing in mind if you can hold a futures position. On the downside, if support at Rs 263-265 is broken, the scrip could drop till Rs 255.
ONGC
Current price: Rs 1,285,
Target price: Rs 1,270
The stock is reacting after testing Rs 1,350 on the upside. It has hit what should be reasonable support at the first Fibonacci level. The pattern suggests a fall till Rs 1,270 (roughly the next Fibonacci level). The futures (Rs 1,295) is at premium to spot. Short the future with a stop-loss at Rs 1,305 and a target of Rs 1,270. Increase the position below Rs 1,285 and clear below Rs 1,270.
TATA STEEL
Current price: Rs 471,
Target price: Rs 460
The stock is still in a downtrend. The futures (Rs 464) is at discount to the spot and a target projection to the Rs 450 level can be made. In this case, it may be better to short the spot, though the position can't be rolled over. The one-session target could be about Rs 460. Take a short position with a stop-loss at Rs 477 and increase it below Rs 468. Start taking profits below Rs 462.
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Src: ET and Etc
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