Short Call | Sun TV’s get out of Jail(er) free card, traders’ fresh stab at Chennai Petro, China Diary

The cash segment's combined average daily turnover has hit a 22-month peak.

Business is the art of extracting money from another man’s pocket without resorting to violence. - Max Amsterdam

Stocks made yet another comeback on Monday, but the overall mood remained one of caution, not an ‘optimistic caution’ though, as was the case last month. There are plenty of takers for large blocks being offered by promoters and private equity investors. Zomato shares closed higher, despite Tiger Global exiting the company. Is it a sign that the Street is confident about the glide path to profitability?

Sun TV

Actor Rajinikant appears to have handed the Sun TV stock a get-out-of-jail-free card in the blockbuster Jailer. The stock’s fortunes have been moving lock-step with the box office collections of Jailer (a Sun TV production) over the last few weeks. Trader circles in Chennai are still keeping away from the stock, which is finding plenty of takers elsewhere. Jailer will make a difference to Sun TV’s current quarter earnings.

But one swallow does not a summer make. The bigger question is whether the Street is amenable to rerating the stock. For the fickle nature of box

collections, look no further than the PVR stock. It has soared in the past when some movies are a hit, only to be punished when another set of movies of flop. Now that the stock is on the rise, many narratives are doing the rounds in addition to the Jailer moolah: value of its cricket franchise, good relations with the current political dispensation, and the promoters suddenly realising the importance of shareholder value.

The company’s business model, brand recall and market dominance have never been in doubt, but its ability to create value for shareholders has been. Poor corporate governance has been a sore point with institutional investors in the past, and the company is yet to send out a signal that it is trying to address the issue.

The stock on the F&O ban list with open interest having exceeded the market-wide position limit. With just two sessions left for expiry and the bullish mood around the stock, odds are in favour of the bulls turning the screws on the short sellers.

Chennai Petro

In 2022, when crude oil prices were on a boil, traders piled on to the Chennai Petroleum Corp stock, triggering a four-fold jump in share price in less than four months. The charge of the bull brigade had been led by the Chennai Super Queen, whose portfolio is managed by her low-profile better half, a well-respected name in the investment circles of that city.

The party in Chennai Petro and other refinery stocks ended abruptly when the government imposed windfall profit taxes on oil exports, and the share price almost halved over the following six months. Traders and investors caught on the wrong foot swore never to go anywhere near the stock or any stock for that matter where the government could change the games of the rules overnight.

So, Chennai Petro went back to being a (under) value stock after a brief stint as a momentum play. But eight months later, it is back in favour with traders and making new highs, even though earnings are still some way off the massive figure posted in the June quarter last year, and the outlook on crude oil prices is benign. The narrative around Chenna Petro this time is that the recent spike in refining margins globally will sustain in the foreseeable future because of industry bottlenecks, even if crude prices remain steady.

From a recent Goldman Sachs report earlier this month:

“The refining system remains structurally tight, following significant disruptions and closures over the past seven years, that leaves it vulnerable to even small shocks. As well as record oil demand levels, the composition is significantly skewed, stressing the global refining system in unusual ways. However, the refining system remains ill-suited to the task at hand. Margins at even the simplest refiners are now above levels a year ago, when the industry was tighter in our view.”

Chennai Petroleum traditionally has been undervalued by the market. At its 2022 peak, the stock price was discounting the one-year forward earnings by less than two times. One big change between last year and now is that the stock managed to pare its gross debt by 55 percent. Can the stock rerate? Traders will need to be convinced that the government won’t show up unexpectedly and bust the party like it did last time.

Bulls home in

Indiabulls Housing Finance joined the F&O ban list to take the total number of stocks in the list to nine. It joins BHEL, Escorts, GMR Infra, Hindustan Copper, India Cement, Manappuram Finance, RBL Bank and Sun TV. For the entire month, the F&O ban list has seen a high number of stocks. It reached 12 last week, before falling to eight on Monday. Though the entry of Indiabulls Housings is not a surprise as it has been on the list the maximum number of times in 2023.

This time, the trigger seems to be repayment of Rs 1,112 crore of bonds which was availed in August 2013. This was the driving force for the 11 percent surge in the stock on Monday, traders say. “From here onwards we enter a phase of positive ALM where loan portfolio inflows will exceed debt repayments by Rs 1,300 crore to Rs 1,800 crore a quarter, all of which will be available for asset growth,” the company said.

This took put open interest for the stock up 200 percent and call open interest up 178 percent. Only unwinding and squaring up of existing positions can happen when the stock is in the ban period; traders will not be able to take fresh positions. This could keep the stock volatile near term

The China diary

A quick look at some key news and developments coming out of the dragon country.

NEvergrande

‘The higher they climb, the harder they fall’ is among the iron-clad axioms of the financial world. China’s embattled real estate major Evergrande group got a taste of this on Monday when its shares crashed as much as 87 percent after resuming trading after 17 months. The immediate trigger was the company postponing talks with its creditors.

However, it’s problems run much deeper. Evergrande is the world’s most indebted developer, with liabilities totalling a whopping $300 billion. The company is symptomatic of the ills plaguing China’s huge real estate sector –unsustainable debt, ‘white elephant’ projects, and anaemic demand.

Charged up

While China’s real estate market is sinking deeper and deeper into darkness, a sunrise sector stands out in colourful contrast – electric vehicles. Chinese automaker BYD’s electronics unit has struck a deal with US-based manufacturer Jabil Inc to buy its mobile electronics manufacturing business in China for 15.8 billion yuan ($2.2 billion), Reuters reports. The deal will expand BYD Electronic's customer base, product portfolio and its smartphone components business as it looks to capture Jabil's potential growth in the sector. Meanwhile, Chinese EV maker Xpeng said it would buy Didi's electric car development business in a deal worth up to $744 million that will see it supply vehicles to the ride-hailing giant, boosting production and cutting costs.

Don’t sell

Chinese authorities asked some mutual funds to avoid being net sellers of shares, a day after financial regulators announced measures to boost investor confidence, reports Bloomberg. Stock exchanges issued the so-called window guidance to several large mutual fund houses, telling them to refrain for a day from selling more onshore shares than they purchased, the report said.

Shubham Raj and Abhishek Mukherjea contributed to this report