Expect less downside for Reliance Power

CNBC-TV18’s Executive Editor, Udayan Mukherjee - There could be pressure for Reliance Power because 14 crore shares, which have come in. For people who bought thinking that once the bonus shares come in they will be able to sell at a price, which will make profits for them but I think that whole trade has not worked out. I don’t think anybody will make money on selling the bonus shares because the stock has fallen far too much even adjusting for any kind of a ratio. It’s a losing trade now the question is whether people who get the bonus- sometimes when stocks lose quite a bit, people don’t sell. They are saying at this price what’s the point of selling might as well for a while and hold this stock on till we get a bit of a bounce up later and then exit at a slightly better price.
 
The quantum of the loss now is so big that you may not see the entire quantity of stock coming into the market because people just forget about the stock, which is lag in their demat accounts do not press sales. Some people would want to cut their losses particularly traders who did the pre-ex, pre-date trade and that is not worked out in their favour. So some people might want to cut their positions when the stock comes into today. So I don’t think 14 crore shares will come into the market but a couple of crore shares.
 
The only point is that even if 1or 2 crore shares come into the market at this point, who is going to absorb it, and that becomes a bigger problem. Already I don’t think there are too many fundamental bias for the stock. If there is more by way of supply coming from the bonus shares today, I don’t think there are too many who are going to absorb that. That might skew the demand-supply equation a bit further.
 
I think at Rs 180-190 for the first time Reliance Power is probably trading at something which resembles fair value. You can’t justify too much downside from here fundamentally because the stock is now trading at Rs 45,000 crore marketcap. NTPC, despite being such a big underperformer is still at Rs 1.4 lakh crore. Reliance Power gets about a third or less than a third of NTPC’s marketcap now.
 
I know projects are very far away but below that I think it doesn’t deserve to be punished. So I don’t know whether there is a lot of downside from here, if there is supply, which comes in today can the stock drift down to Rs 175. It’s entirely possible but below that from a fundamental valuation point of view, I don’t think more punishment is deserved.