Ranabaxy Insider Trading - Where is SEBI?

Markets Rejoiced the mega merger announcement of Ranbaxy and Sun pharmaceuticals on 7th April 2014 but the real action was happening in the prior week and somebody made fortune by having an insider line in this deal. 

The stock shot up more than 25% in the prior week on very high volumes but very low delivery indicating speculative built up of position prior to the merger announcement. 

Delivery on the National Stock Exchange was around 12 per cent of traded volume on 2nd, 3rd and 4th April when the stock witnessed nine per cent, 5.1 per cent and 8.2 per cent respectively. The closing on 4th April was less than Rs 3 from the share price in the deal. 

Model Portfolio: One Year Performance Review

The model portfolio which was created with an initial capital of Rs.1,00,000 /- on 21st March 2013 completed one year of existence on 21st March 2014. I feel very happy to say that in-spite of very challenging  macro and micro economic situation in India, our model portfolio has outperformed benchmark Nifty by huge margin.

Model Portfolio snapshot as on 21st March 2014:



As can be seen from the Nifty chart below, during the period from 21st March 2013 to 21st March 2014, Nifty has delivered an absolute return of 14.74% while our model portfolio has generated 29.1% return based on the closing price of stocks held in the portfolio as on 21st March 2014.

Sell DLF 220 Call Option

DLF has moved up sharply from the 140 odd levels since the beginning of March 2014 to 180 as on 12th March 2104 mainly due to short covering. Due the sharp up-move in the stock on 11th March on very low delivery volumes and short covering, the IV's in the strike prices of the counters has gone up substantially. One can utilize such high IVs to sell far out of the money call which are adequately safe.

Valuation wise DLF is trading at around 16 times EV to EBIDTA of current financial year which is quite expensive in the context of slowdown in realty sector in India. Also the majority of debt reduction exercise is over which means all the good news in terms of debt reduction is discounted in the price. Technically the stock seems to be highly overbought at current levels and is also up more than 25% since the Feb 2014 closing. Hence there seems to be limited upside (if at all) from current levels. Hence one can sell 220 strike call @ 0.95 or higher which is highly safe as movement towards 220 will imply almost 50% move from the Feb close.

Total Return from the trade:

Buy Bharti Airtel at every decline

Bharti Airtel
With spectrum auction out and the M&A rules defined, the telecom sector is finally getting out of the regulatory interference which is a big positive for all the telecom players in India. Though the debt level of the sector will further rise, consolidation and tariff rationalization will make the leverage position of the sector comfortable in next 1-2 years. Both the big telecom players Bharti and Idea Cellular appears attractive for investment at current levels but Bharti Airtel in particular is very attractively poised at current price of around Rs. 290. Here is why?

1. Back of the envelope calculation suggest limited downside and reasonable upside. Lets consider following valuation points assuming around Rs.92000 crores of revenue, Rs.30000 crores of EBIDTA and net debt of Rs.60000 crores for FY-15.

Corporate Governance Rating for listed companies in India

SEBI is considering a "Corporate Governance Rating" for every listed company in India which, in my view, could be a game changing event for minority shareholders. Security Exchange board of India is in the process of finalizing its new Corporate Governance Code and revamp insider trading norms. Beside having new rules that are largely targeted to protect minority shareholders, Governance Rating for each company will be very handy specially when a small investor is investing in mid and small cap companies.

Like IPO grading, a grading system for companies on governance front is a much needed reform that will strengthen the overall capital market of the country. For minority shareholders, governance is much more important than valuations and the former being subjective it becomes very difficult to asses the score in that front. 

If "Corporate Governance Rating" become reality it will help all of us in flushing out almost all crap and scam ridden companies. All we need to do is check the score and completely avoid companies which are below certain level. 

In my whole investing career more than 90% of my loosing bets were due to governance issues in the companies. Strong insider trading rules and tough penal actions for the guilty along with Corporate Governance Rating will surly help build confidence in the Indian Stock Markets and encourage wider participation by small retail investors. 



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