Udayan's analysis: Why Rel Power fell on debut

WHAT'S THE TARGET? At Rs 300, Rel Power will have a market cap that is 40%-42% of NTPC�s market cap

J & K | Chhattisgarh | Delhi | MP |
Mizoram | Rajasthan

Featured Blog

Rajdeep Sardesai

26/11: Terror comes precariously close

Featured Slideshows

Technicals in the near-term do not favour Reliance Power stock; it needs to be supported on day one to absorb some of the supply which comes in and you could see attendant selling on the futures market too because of fundamental factors and people believing that it may be overvalued and they need to exploit the weakness.

On technicals of Reliance Power:

We have been talking about how HNIs would want to flip because they have not got 900 etc. and they would want to get out of those positions. But it is instructive to talk about the quantum of money which we are talking about. Instead of just aimlessly talking about who is going to sell and who is going to buy, just look at the allotment figures – who’s got what. Retail got Rs 3,000 crore, HNIs got Rs 1,000 crore and QIBs got about Rs 6,000 crore. So you were seeing some basic sets of numbers.

Assume that every HNI will want to flip on Day one, which I think is a reasonable assumption – Rs 1,000 crore of selling to come in on Day one. Retail got Rs 3,000 crore; 2/3rds of them would want to flip. Is that a reasonable assumption? I think so. I think there might be one guy in three who wants to own Reliance Power in the longer-term. But two out of three would have played for the pop; so Rs 2,000 crore retail, Rs 1,000 HNI potential selling on Reliance Power today.

On QIB, I have a less lofty view of the QIBs as great long-term institutional investors. But let us say half of them at least bought for the medium-term and did not get enough allotment. So half of them would want to flip and they got in for the flipping game to begin with; because they saw dream of Rs 900 and they wanted to play for that pop. So is that Rs 3,000 crore more of potential selling which had come from the QIB fraternity? That is Rs 3,000 crore plus Rs 2,000 crore plus Rs 1,000 crore; Rs 6,000 crore of potential selling, which could be stacked up.

Once you add those numbers, it is probably not such a huge amount of supply for the kind of stock and the kind of promoter that we are talking about to absorb. But Rs 6,000 crore of selling needs to be absorbed. I have no doubt that some institutional investors would want to buy as well because the bids were large and some of them probably for the longer-term, would want to own some more stocks because allotments were quite poor because of over-subscription. There could be some buying which comes in from some mutual fund houses as well which might soak up some of that supply.

So let us say that out of that Rs 6,000 crore of supply that we are talking about, Rs 2,000-3,000 crore is mopped up by some institutional quarters and the rest needs to be mopped up by somewhere else. I do not think it is such a tall order. So in the near-term, while there is going to be supply which comes in, I would hesitate to become too bearish from a technical point of view.

I know a lot of people are probably waiting to exploit the kind of weakness that they see. Because of the supply which comes in temporarily, there could be weakness. But I think it might be also dangerous to go whole hog shot on that stock this morning because you could be surprised and forced to cover up your positions. So yes, technicals in the near-term do not favour the stock; it needs to be supported on day one to absorb some of the supply which comes in and you could see attendant selling on the futures market too because of fundamental factors and people believing that it is maybe overvalued and they need to exploit the weakness.

So there could be some selling. But I think there could be enough support coming by way of the stock because one and a half billion dollars for this group is not such a large sum of money to either put in or to garner by way of support. I would just keep that at the back of my mind because it looks like everybody you speak to might be wanting to sell. But once you work the numbers, I think those numbers can be conjured up.

Next: On fundamentals of Reliance Power: