Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

RPL AND RNRL – STOCK PRICES DEFY FUNDAMENTALS

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11:34 am (8 minutes ago)

Milin Thakkar

SP Tulsian's view

RPL AND RNRL – STOCK PRICES DEFY FUNDAMENTALS
By SP Tulsian

Reliance Petroleum Ltd. (RPL) promoted by Reliance Industries Ltd. (RIL) is setting up a Rs.27,000 crore refinery of 29 million TPA at Jamnagar. The company is scheduled to start its commercial production on or before December 08.

Reliance Natural Resources Ltd. (RNRL) is a Reliance ADAG group company, which has been formed, mainly, to secure gas supply arrangement with RIL from Krishna Godavari Basin, to be explored and produced from June 08, and to be used by the power projects, to be set up by Reliance Energy Ltd. (REL) a company of Reliance ADAG group.

RPL, since implementing its refinery has not been making any profit & loss account and entire amount spent on the project is capitalized and there are no commercial activities at present. However, RNRL though, has got the allotment of coal bed methane block, onshore oil exploration blocks, exploring opportunities for import of gas, city gas distribution business and also for setting up gas terminals at coastal based locations, it does not have much of the business activities. For quarter ending September 07, RNRL had total income of Rs.61.31 crores which has resulted into an EBITDA of Rs.48.21 crores, PBT of Rs.26.75 crores and PAT of Rs.19.17 crores on equity of Rs.736.57 crores (face value of Rs.5) resulting in an EPS of 13 paise.

RPL share is now ruling at Rs.225 while RNRL is ruling at Rs.155. With the present state of activities of both the companies, nobody would really think of buying these stocks at the prevailing rates, when much better options are available. It is also strange to note that, couple of days back, RNRL had a high of Rs.199 while RPL had a high of Rs.295, on NSE.

It is surprising to see that retail investors have bought heavily into both of the stocks and mainly in F&O segment. RNRL lot size is 7,150 shares while RPL lot size is 3,350 shares. Due to this, value of both the stocks has almost touched Rs.10 lakhs, which is considered very high f

11:34 am (8 minutes ago)

Milin Thakkar

To Mods

Separate thread craeted becos it talks about RPL+RNRL

11:35 am (7 minutes ago)

Milin Thakkar

Due to this, value of both the stocks has almost touched Rs.10 lakhs, which is considered very high from retail investors’ view.

The irony is that, for the last couple of days, both these stocks have been showing a volatility of about 25% to 30% on an intra day basis, with negative bias at the closing levels. The share price has also corrected by about 20% to 25% in the last 2 days. Even options segment has been showing huge premiums on calls, which were bought by the retail investors.

Given these facts, obviously, it is very surprising to understand why retail investors are bullish on both these stocks, despite no existing fundamentals to support these stock prices. There is only one apparent reason – momentum. The retail investors have became complacent and have accepted that share price of both the companies would keep going up, one way and hence, it is very easy for anyone to make money, in F&O market, by creating long position. But now they are all stuck with their long positions and have been sitting on good amount of losses. Since some of them are unable to bear these losses, they have had to cut their positions by booking losses and leave the battle half way.

This kind of volatility has been witnessed in the stock price of REL around Dussera where share price fell by about Rs.500 to Rs.600 from a high of Rs.1,950. Though share price bounced back from Rs.1,200 to Rs.1,800 in less than a week, weak hands lost huge money in F&O segment. Same thing is going to get repeated now in case of RNRL and RPL. If the recovery process is delayed in case of these scrips, this time, traders may not be able to hold their positions due to lack of patience and of capacity to finance mark to market losses

The message is loud and clear for traders – remain away from such volatile stocks and especially, refrain from trading into these stocks in F&O segment. It is also very much necessary to look into the fundamentals of such stocks being traded, even on technicals. Momentum or taking blind call

11:36 am (6 minutes ago)

Milin Thakkar

Momentum or taking blind calls even on promoters, can cause huge losses in the short term, though the calls may remain profitable in the long run. So traders loose, investors gain.

11:37 am (5 minutes ago)

Milin Thakkar

Trade with Caution, for investors not much to worry about..

11:42 am (0 minutes ago)

Devesh…

Peter Lynch quote which apllies to RNRL and RPL:

"If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favourable publicity, the one that every investor hears about in the car pool or on the commuter train – and succumbing to the social pressure, often buys," said Lynch"

Rakesh Jhunjhunwala and Nemish Shah are short on RNRL and RPL. CLSA has a price target of 195. Shankar Sharma, N J
aykumar and Udayan dont know what business RNRL do…neither do i know….

ALL THE BEST TO THOSE WHO TRADE IN THESE STOCKS !

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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