Traders turn bearish on CIL, stock falls 4.5%

Traders created bearish bets on Coal India on Monday on news the government plans to sell a stake in the company in a month. Coal India shares dropped 4.5% on Monday to Rs 358 as investors expect the company's share sale will be priced at a steep discount to the current market price. 

The government plans to divest 10% stake in the company to garner about Rs 24,000 crore in a month. "Looking at the current market conditions, the divestment of Coal India may happen at 6-7% discount from the current market price. This may provide short-term investors a handsome opportunity for trading in Coal India shares," said Kunj Bansal, executive director & chief investment officer at CentrumBSE 4.58 %. The total traded volumes in Coal India on Monday was at 2.88 lakh shares on the BSE, more than double the two-week average of 1.27 lakh Stock Market Trading Tips

Analysts said the position build-up in Coal India futures shows the stock could be subdued in the coming days. "Coal India futures added 6 lakh shares of short positions on Monday, while February futures continue to trade at a discount of Rs 3, which suggests that the divestment overhang on the stock will remain going forward," said Hemant Nahata, derivatives analyst at IIFL. 


"We expect most of the action to happen in the February series as the share sale is unlikely to happen in the January series." 

If the government raises Rs 24,000 crore from Coal India this time, it would be India's biggest-ever share sale, beating the record set by the company in October 2010, when the government raised Rs 15,000 crore through an IPO Personal Numerology Trading Tips

Analysts recommend subscribing to the Coal India issue. "I would advise retail investors to participate in the share sale offer as the stock price will be available at a steep discount from the current price. I expect the Coal India stock price to fall another 5-7% from the current level, from which retail investor can get further discount of 5% on the stock price," said Arun Kejriwal, founder & CEO, Kris Research. 

The Coal India stock has risen 37% in the past year against the 35% gain in the Sensex. It is trading at 14 times price to earnings (P/E) based on 2014-15 estimated earnings. For traders looking to benefit from any stock weakness before the issue, Nahata advises selling Coal India's put option of either 320 or 330 strike price, or selling call option of either 380 or 400 strikes of the January series Intraday Trading Tips