Rel Energy won't go above Rs 1600 in near-term

CNBC-TV18's Executive Editor, Udayan Mukherjee - Reliance Energy, the quantity is not bad, couple of Rs 1,000 crore in two trenches. Last time they said but they did not buy, so we’ll wait and see if they are going to buy from the market or not or this is just a signal, which they will be content sending and they are not acting or following it up with action.

I’m a little disappointed with Rs 1,600, maximum price because it’s at best a weakish kind of signal to the market. The stock has collapsed quite a bit. This is a Rs 2,500 stock which has now come down to Rs 1,450, so after such big correction, if the management comes out and says I’m only going to buy till 10% higher than the beaten down price, I don’t think it sends out a strong price signal to the market.

My feeling, after hearing that the maximum price is Rs 1,600, is that the market could easily say that Rs 1,600 now becomes the sealing for the stock because if the management is not willing to buy above that I’m not going to stick my neck out and buy above Rs 1,600. So may be it gets supported at lower levels because if the management comes out and mops up some stock from the market. But I don’t think the stock will go above Rs 1,600 in the hurry in the near-term, unless the market takes off from here because that’s the signal, which the market will get from this buy back programme.

The other thing, which is bothering Reliance Energy is the Reliance Power stock price because you may argue that some part does not work out but it certainly derives quite a bit of its value from the listed Reliance Power. That’s come off to Rs 375 now and that’s a curious situation for me because after the bonus announcement the stock has drifted down to Rs 375. One needs to ask oneself a simple question today, what is the guy who is selling Reliance Power at Rs 376 thinking? In a few week’s time he’s going to get the extra bonus share. So if somebody owns Reliance Power today, two weeks or three weeks before getting the bonus shares he is selling that stock which means that his expectation is, if one works the simple Maths, that ex-bonus Reliance Power won’t even be at Rs 235. Because if he believes that Reliance Power ex-bonus will be more than Rs 235 than it’s a simple arbitrage, there is no reason for him to go out and sell Reliance Power at Rs 376.

Two-weeks down the line for every 5 shares that he holds, he’ll have 8 shares. Those 8 shares into Rs 235 is more than the current market price, so why is he selling Reliance Power today. It betray the lack of confidence of Reliance amongst investors of Reliance Power being above Rs 235 even after ex-bonus, which is quite disturbing and that might be part of the sentimental reason, which is bothering Reliance Energy at this point in time.