What will Chevron do in Reliance Petroleum Limited?

By Vipin Agnihotri

When completed, Reliance Petroleum Limited is going to be Asia’s biggest refinery but at present it is in construction phase. Despite all this, for the last one year, Reliance Petroleum Limited has been one of the most buzzing stocks in the Indian market.

It is worth mentioning in this regard that stock of Reliance Petroleum Limited has provided return of more than 200 per cent over the last year. Albeit in the recent past, from its all time high of Rs 295, the stock has fallen by more than 30 per cent.

Lots of experts believe that the US oil major Chevron, which presently owns 5 per cent in Reliance Petroleum Limited, may sell its stake. According to sources, Chevron is evaluating all the options available at hand. Not so long ago, Reliance Industries Limited sold as much as 4.01 per cent equity in Reliance Petroleum Limited for an average price of Rs 223, totaling little over Rs 40 billion.

Post equity trade, Reliance Industries Limited’s holding in Reliance Petroleum Limited has come down to a level of 70.99 per cent. Point to be noted here is that the deal has enhanced Reliance Petroleum Limited’s shareholder base considerably and this will give respite to investors. Interestingly, there was not even a single bulk deal in the complete stake off-loading processing.

Moreover, there is a buzz that further off-loading of 0.9 per cent is on the cards. Now with Reliance Industries Limited off-loading 5 per cent, Chevron cannot acquire 29 per cent stake in total from Reliance Industries Limited since Reliance Industries Limited won’t like to bring its shareholding in Reliance Petroleum Limited to a level less than 51 per cent. Taking this into consideration, the other option is to buy a 20 per cent in total from Reliance Industries Limited and rest from the market or make an exit. What will Chevron ultimately opt is a pivotal question.

Suggested Reading:

• Anil Ambani all set to be the Rupert Murdoch of India

Hot or Not? Ambanis on a dream run!

Sundaramurthy Vadivelu

Disclosure Please click on the above link to view the disclosure document before reading this article. The contents may not be reproduced in any form without obtaining prior permission from the publisher. Please send your feedback

The Ambanis: Anil, Dhirubhai and Mukesh

Dhirajlal Hirachand Ambani (28 December 1932 - 6 July 2002), was instrumental in bringing first time Indian investors to stock market. After working in Gulf as dispatch clerk, he returned to India to start Reliance Commercial Corporation with an investment of Rs.15,000. It was engaged in polyster yarn import.

He started a textile mill at Naroda, Ahmedabad to manufacture textiles using polyester fibre yarn. He implemented backward integration philosophy and a petrochemical complex at Patalganga in Maharashtra was set up to produce polyesters, intermediates and petrochemicals. Reliance established another petrochemical complex at Hazira near Surat in Gujarat to manufacture ethylene, propylene, ethylene glycols, polymers like polypropylene, polyvinyl chloride, polyester intermediates like pure terephthalic acid, polyester filament yarn etc.

His dream project, of course, was a grass root refinery. The 27 million metric ton grassroot refinery at Jamnagar, Gujarat came up in 1999. Reliance has diversified into power, telecom, infrastructure, capital markets, insurance, logistics, retail etc.

At the time of Dhirubhai’s demise, Reliance Group had a gross turnover of Rs. 75,000 crore. This was 1000 times its 1976 – 77 turnover of Rs.70 crore.

Reliance came out with their first IPO in 1977 and Dhirubhai convinced people in rural Gujarat that his company would yield substantial returns to shareholders. This happened at a time when the awareness among public about stock markets was minimum.

Have his sons, Mukesh and Anil, lived up to Dhirubhai’s repuations? The answer is a big YES, as can be seen from the tables below.

Mukesh Ambani Group Companies’ Performance:

Scrip	3 month return	1 year return	5 year return
IPCL	34	50	621
RELIANCE	38	104	822
RIIL	140	138	3,542
RPL	74	150	NA

Anil Ambani Group Companies’ Performance:

Scrip	3 month return	1 year return	5 year return
RCOM	17	72	NA
REL	85	137	396
RELCAPITAL	45	196	3,370
RNRL	167	307	NA

For details about close prices on various dates, please click here.

In the last 1 year, IPCL and RCOM have gained more than 50%; All other companies have gained more than 100%. In the last five years (After Dhirubhai’s demise) RELCAPITAL and RIIL have got multiplied by more than 30 times; REL, IPCL and RELIANCE have gained more than 4, 6 and 8 times respectively.

Dhirubhai is no more; but his dreams have become true. Those who had faith in him and his companies have been thoroughly rewarded.

Let us now analyze some of the medium term charts of these companies.

In late 2004, the media reported that there was some dispute among Ambani brothers regarding ownership of group companies. The Hindu Businessline dated November 30, 2004 read:

“THE Ambani controversy was today stoked further with the despatch of another e-mail to the employees of Reliance Industries Limited, this time by the Vice-Chairman, Mr Anil Ambani, obliquely emphasising the brothers' equal status in the corporate group.

… This is the third email to the employees from the Ambani brothers. The first one was from Mr Mukesh Ambani last week, telling his employees that the Chairman and Managing Director (who is himself) is the final authority at Reliance…”

What did this mean to the stock market? See the chart below.

http://groups.google.com/group/theindiastreet/web/RELIANCE_W_150705.jpg

The weekly chart of Reliance indicates that on November 5, 2004 the stock closed at 540.35. On June 10, 2005 it closed at 566.55.

Between November 5, 2004 and December 17. 2004, the Nifty gained 160 points whereas Reliance lost 59.80 rupees, indicating the market was not quite certain about the stock. Reliance is known to perform very much in line with both Sensex and Nifty due to its weightage. But during this period it was not so.

Finally, after the accord was reached between the brothers, the stock managed to break its resistance at 650 during the week ending June 24, 2005. Technically, a “three inside up” bullish candlestick pattern was formed during first week of June. There was a huge upward gap when the resistance was broken.

The Tribune reported on June 19, 2005 about the accord as follows:

“India’s biggest industrial conglomerate, Reliance Industries Limited, will finally be split up between Mukesh Ambani and his younger brother, Anil, thereby ending a seven-month war between the two.

Kokilaben Ambani, their mother and widow of Reliance Industries Limited founder Dhirubhai, announced the broad contours of the settlement in a statement released here today.”

All the companies mentioned above are currently trading at lifetime highs. There have been no reversal signals on any of the medium term charts. But it is better two book profits in RIIL and RNRL, since both have appreciated very sharply in the last one week or so.

Reliance Industrial Infrastructure Limited

(Group: B1, Scrip Code: 523445):

http://groups.google.com/group/theindiastreet/web/RIIL_W_250907.jpg

The stock formed a false “head and shoulder” pattern between January 2006 and March 2007. False, because, the neckline support was not broken; Volumes were increasing as right shoulder was formed. Between May and June 2006, stock had fallen from a high of 951.70 to a low of 357.40. A bullish three inside up candlestick pattern was formed during the week ending September 7, 2007. From a close of 498 it has appreciated to 1149 (131%) in just about 11 trading sessions. It is extremely overbought in daily charts as well. So profit booking may be considered in this counter.

Reliance Natural Resources Limited (Group: B1; Scrip Code: 532709):

http://groups.google.com/group/theindiastreet/web/RNRL_W_250907.jpg

This stock made a high of 41.65 in March 2006. It had broken this resistance during the week ending July 20, 2007. However, in the last six trading sessions the stock has already gained 84%. It is quite an unusual movement since no major price rise was observed for almost 2 months after the breakout. Profit booking may be considered in the stock for the medium term.

As mentioned earlier, we need to wait for a confirmation of trend reversal for these stocks. But short term investors may avoid these stocks due to overbought conditions and a reversal is expected anytime.

Sundaramurthy Vadivelu

Suggested Reading

Hot or Not? Automobile Sector on a slippery road! Hot or Not? Private sector banks on a roll! Hot or Not? Aviation companies flying low! Hot or Not? Shipping companies sailing smoothly!

5 Great Long Term India Stock Buys

Disclosure

In my earlier article “Psychology of Investing and Trading” we discussed about short term, medium term and long term investing. “Long term investing” means buying and holding a stock for a period of at least one year or more. The long term investors have some advantages. They need not worry much about day to day movements in the market; nor they need to track them every now and then. But it also depends upon when they are investing. For example, a stock may have appreciated 16 times already when a long term investor buys it. His returns may be comparatively less than someone who bought it say, when it got doubled or quadrupled. The long term investors also face a certain degree of risk since the business conditions may change over a period of time.

Here let us discuss about few stocks which look technically interesting from a long term perspective.

Dena Bank:

http://groups.google.com/group/theindiastreet/web/DENABANK.JPG

We discussed in my earlier article, “Chart Patterns and market’s reaction” about bullish and bearish patterns. Here’s another, called triple tops. This is a bearish indication. But when the triple top formation is successfully broken out, it becomes an excellent opportunity to enter the stock. Usually it is said, “Never buy a stock unless it breaks the resistance; Never sell a stock unless it breaks the support.” As displayed in the above chart, watch the triple top formation since 30.06.04. It has taken three full years to break this pattern. Big movements take considerably long time. The stock tried to break the resistance on two occasions but failed. Last month, it broke the resistance with highest volumes (see the chart). This month too, it has closed above it. The stock looks very interesting from a long term view. From a low of 4.60 in September 2001 it has gone upto a high of 50.80 or got appreciated nearly 11 times. From the current levels, one can expect a gain of around 100% to 200% within a two or three years.

GTL Limited:

In the year 2001, the stock had fallen from a high of 873.65 in January to a low of 47.55 in September. It has been consolidating since then.

http://groups.google.com/group/theindiastreet/web/GTL.JPG

Watch the 66 month consolidation pattern between October 2001 and March 2007 in the chart displayed above. In April this year, stock had successfully broken this pattern. Between 2002 and now, the index has already appreciated more than 4 times. Read my earlier article “Indian stock market – an outlook” for more details. This stock has not “participated” at all in the current bull run i.e. the market participants have shown little interest in this stock. Now, if we consider a retracement of 50% it works out to around 460. In other words, we can expect this stock to double in the next few years.

GVK Power and Infrastructure Limited:

Yet another case of a triangle breakout. This stock too had a reasonable fall in the past, from a high of 388 in February 2006 to a low of 130.80 in July 2006. Last month it had broken out with a triangle height of about 257 rupees. When this is added to its previous high of 388 it gives a target of 645 rupees. But for the short term we may expect some decline since there has not been a significant correction from its low of 130.80. These corrections should be good opportunities to enter the stock for long term.

http://groups.google.com/group/theindiastreet/web/GVKPIL.JPG

Reliance Petroleum Limited:

We have already discussed this stock in my earlier article “How do IPOs fare in secondary market?”. I had mentioned that the stock had formed a “bowl” shaped pattern in weekly charts. Same is the case in monthly charts too. We may think of this as the “cup” portion. We will have to wait for the “handle” to form, which may take few months time.

http://groups.google.com/group/theindiastreet/web/RPL.JPG

Within 2 months of listing the stock had fallen from a high of 105 to a low of 58.05. But it has bounced back and closed above the resistance this month. Since it has retraced more than 100%, one may watch this stock for declines. As we have seen from my earlier articles that cup and handle breakout is a bullish continuation pattern, it is necessary to observe whether this is formed at all. The next step will be confirmation of the breakout.

SREI Infrastructure Finance Ltd:

http://groups.google.com/group/theindiastreet/web/SREINTFIN.JPG

This stock has been consolidating since October 2005. It has formed a “rising window” this month while breaking out. Watch the full upward gap or the rising window in the chart. This indicates a strong demand for the stock. It is currently on its 3^rd wave in monthly chart. Even if it declines, the “gap” should act as a strong support for the stock. In the long term, it may touch 180 or double from the current price levels. Technically it looks very good with the upward gap formation.

SUNDARAMURTHY VADIVELU

The India Street

How do IPO’s fare in Secondary Market?

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on theprinciples of technical analysis, a science that has been tested and proven formore than hundred years. The views are unbiased and informative in nature.These do not constitute an offer to buy or sell stocks. Every effort has beenmade by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannotafford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or hisclose associates may or may not be having positions at the time of writing thisarticle.

The reader needs to understand that this article is purely for informativepurposes only and all transactions, if entered into by him will be solely at his risk.

The author does not guarantee that the projected targets will be achieved withinthe stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com).

- - - - - - X - - - - - - X - - - - - -

IPO or Initial Public Offer facilitates a company to sell its equity shares toinvestors, usually for the first time. There are two ways a company can allotequity shares to investors:

1. Fixed Price Option in which company fixes the issue price.

2. Book building method, in which company fixes the floor price and theprice range for bidding by investors. The investors need to bid for equityshares between the range fixed by the company.

The difference between the two, apart from price is that the demand for thesecurity can be known every day in case of book building whereas in fixed priceoption it can be estimated only after the issue closes. The allotment price will beinitimated to the investor after allocation of shares.

A company can issue IPO’s either by fixed price option or book building methodor a combination of both. Now a days book building is more common.

When an investor applies for an IPO, he reads the offer document and if satisfiedwith its contents, risk disclosure etc. he proceeds further with the applicationprocess.

However, after the stock gets listed in the exchange and trading begins, we findthat funny things start happening. Obviously no price volume data will beavailable before the stock gets listed, and as trading goes on, the technicalanalyst will be able to understand the price action.

Before one invests in IPO, he has to realize this fact and it is one of the marketrisks. Companies with good fundamentals and decent corporate results havestruggled in the stock market.

Let us study each case with an illustration.

Educomp Solutions Limited:

Issue price was Rs.125. The stock has skyrocketed to Rs.1880 as on28.05.2007. So, the investor has gained about 15 times in 16 months time. Nice thing, if one had the vision to anticipate such price.

Let us examine the weekly chart of EDUCOMP shown below.

Every rise was followed by a corrective decline or sideways movement as it canbe seen in the chart. This is an indication of a healthy bull market.

This is an example of an ideal case where the bulls were in perfect control overthe stock.

Jet Airways (India) Limited:

It was allotted at Rs.1100 per share 2 years ago. It has been struggling eversince it got listed. Nice airline with good financial results but in the stock marketit is truly an underperformer. I have read reviews of Jet airways and they fly toSouth East Asia, Europe and USA (from August 2007) as well. Their serviceseems to be very good, I understand from the reviews. The net profit for thefinancial year 2005 – 2006 is about Rs.452 crores or Rs.4.52 billion. But let ussee the weekly chart of jet airways for a while.

It continued to form lower highs and lower lows till about late July 2006. It fellfrom 1383 to 475. It was bullish till mid February this year and managed to closearound 786. As can be seen from chart, it broke its support trendline andreached another low. Stock seems to be bearish and it is quite possible thatfurther lows may be reached. Unless it closes above 805 which will be horizontalresistance line one should not expect much from this stock.

Bombay Rayon Fashions Limited:

Issue price was Rs.70. Textile stocks have been witnessing a steep fall thesedays but this one is attempting to test its previous high.

It was almost non stop rise from 80 to 258.60 followed by a downtrend to a lowof 102.50. It managed to break its previous high and touched a high of 275.50during the next uptrend. But since its support trendline has been broken, it mayface strong resistance at its previous high.

This is a remarkable stock considering the bearish trend among popular textilestocks like Arvind Mill, Alok Textiles, Bombay Dyeing, Raymond etc.

JHS Svendgaard Laboratories Limited

The stock was allotted for Rs.58. But it was continuously bearish and reached alow of 27.50. Currently it is bullish and a close above 43.20 is likely to take thisstock further up.

There is nothing wrong with this stock technically. Uniform price volume patterncan be seen in case of both uptrend as well as downtrend. It has closed aboveits resistance trendline. One will have to wait and see whether it closes above itshorizontal resistance line at 43.20.

Reliance Petroleum Limited

Issue price was Rs.60. The stock touched a high of 105 in the listed week butthere was not much of activity for the next 10 or 11 months. It turned bullish inlate March this year and very likely to test its previous high soon. Its previouslow of 58.05 has not yet been broken, though it did come close to it at 58.10.The chart looks like a bowl – very unique.

Shree Renuka Sugars Limited

It was issued for Rs.285. After that it skyrocketed to 1665 and fallen again allthe way to 260.10. This again is unique – all this happened in about 18 monthsor so. Though currently bullish, because of the absence of clear waves, it islikely to face resistance around 917. One of the few sugar stocks the crowd isinterested when many others are on a downtrend.

Conclusion:

Investing in IPO’s has its own potential risks and rewards. Some are runawaysuccesses whereas some others have miserably failed. So, before you put yourmoney in IPO please be aware of this fact. Each stock does behave differentlybut understanding what IPO and how it fares in secondary market will make theinvestor little more knowledgeable.