It’s
public knowledge now that the second tranche of promoter stale sale in Castrol
was due. In fact last month, many traders were caught short anticipating the
block deal that never took place and stock saw massive short covering.
Something
interesting happened again here between yesterday and today. Lot of shorts got
built yesterday anticipating the conventional wisdom of the block getting
executed at a discount. In fact, yesterday there was some 40% jump in Open
Interest and the stock fell 4%
Now,
the interesting bit here which a lot of people have forgotten is that Castrol
India has been a massive underperformer over last 2 years. In fact the way
crude has fallen, this stock should have been a multibagger but actually over
last 2 years, it fell some 28% for variety of reasons but the promoter stake
sale was the main overhang.
So
what happened this morning? The block deal book was launched at a price band of
Rs 408-422. First thing in morning, the entire issue was underwritten by a
single investor. Yes, a single investor was ready to commit Rs 1800 cr in
Castrol. This led to a lot of protest by other investors who all wanted a pie
of the share. After all, this is a global MNC, blue chip and a stock which has
underperformed with potential to rally big and with knowledge that promoters won't sell any more now with stake down to 51%. So finally, merchant bankers had to
drop the deal in the block window since the price in morning itself went much
beyond the band and the demand was too huge. And hence the deal at a premium
and once again shorts getting trapped.
What
next? Well, looking at the appetite today and given it’s last 2 years of
underperformance, if the stock has hit an inflection point, I won’t be
surprised to see this stock running away to 550-600 and that too if you are
conservative. Of course, this won’t happen tomorrow and the stock is bound to
have periodic correction. But the market is offering you an interesting idea if
you are willing to pay a minor premium over the recent price move!!
P.S
– These are my first thoughts immediately after the deal and the feedback I
have got. Please bear with me for typos, grammatical errors etc.
Disclaimer: The author of this article does
not invest/trade in stock markets including derivatives. His only exposure to
stock markets is via the stock options given to him by his employers as part of
his compensation
