Think of buying NTPC around Rs 140-150

CNBC-TV18s Executive Editor, Udayan Mukherjee – There was aggressive shorting in the power sector yesterday aside of some delivery base selling, which might have happened if you just look at the pile up in open interest. I think people have gone terribly short on some of these sectors.

My sense is from a trading perspective. Reliance Power might have spoiled the mood because it is unexpected for a lot of the traders at least that Reliance Power has fallen off to Rs 228 kind of levels after going ex-bonus. That has injected a lot of fear into valuations for power stocks.

Other than that there is no ostensible reason why power sold off yesterday but clearly there was a heavy amount of shorting. I think Reliance Power probably has quite a bit to do with the sentiment for how power stocks sold off.

Now you go back and look at valuations, this is a sector which has got punished quite a bit in this fall from January to March and was one of the first sectors to top out after ridiculous valuations at the end of 2007. Right now if you just look at valuations out there after the fall yesterday, they are not terribly cheap but they are not ridiculously frothy either.

So we maintained long that from the end of 2007 that when a sector falls off after euphoric valuations like power has, it will take a lot of time for the constructive period to play out and for those stocks to bounce back. But NTPC is now trading at about 2.3 times current year’s book, Power Grid is trading at 2.5-2.4 times. So at 2 times book if these stocks come down to those kind of levels, which is not inconceivable. I think for these kind of good quality companies you may consider paying twice book to maybe accumulate some of these stocks.

I am not saying go out and buy them today. But if these stocks fall a bit more from here for example NTPC falls to Rs 140-150 kind of zone, Power Grid falls to Rs 80-85 then you probably are buying reasonable amount of safety with not too much by way of downside for some of the quality companies, which have established projects on the ground.

So generally what I am saying is that the mood is bad, the stocks could still fall more but at lower levels probably your risk reward becomes a little bit better if you are a slightly medium-term investor in some of the good quality power plays.