Indian Stock Market Watch
I thought I would dig
a little deeper into margin trading with data at a stock level released by the
National Stock Exchange (India’s dominant exchange). In this context, please
refer to my blog of July 7 titled “Margin trading
investors seem less enthusiastic with the current bull market, which showed the
current level of margin funding by brokers and its trend over the last ten
years, using NSE data.
As of the end of last month, June 30, 2015, the five companies in
which investors were most heavily invested using margin funding on the NSE are
shown below.
Three of these are large caps - SBI, ICICI and Tech Mahindra. Suzlon is
a mid cap, and Raj TV, is a small cap. SBI has consistently ranked number one for most of the period since
the start of 2011. Raj TV is an interesting one. But I have little knowledge
about this company, and so I will not even start thinking about why investors
would want to leverage and buy this stock.
As I have been following Suzlon and am a cash investor in Suzlon, my
focus will be on this stock. For the majority of time since 2011 it has been
among the top twenty stocks leveraged by investors using margin funding.
Yet it is a stock that fell in price by 85% in value since the start of
2011, and only since mid 2013 has rebounded in value to the current level of
22, but is still 50% below its price in January 2011!
The graph below compares the stock price of Suzlon with the margin
funding outstanding.
The picture above suggests that a set of investors using margin funding
have been consistently positive on Suzlon - their exposure to Suzlon did fall
as the share price fell, but after taking a break in the second half of 2014,
they once again took to investing in Suzlon.
The graph below compares the share price with the rank of Suzlon among
the top margin funded stocks.
Apart from a nine month period from July 2013, Suzlon has ranked among
the top twenty stocks traded using margin debt.
A look at NSE data for the last week ended July 17, 2015 showed that
Suzlon's position was first!
Suzlon is a company that got just about everything wrong since 2007:
overexpansion, excess borrowing and a nasty external environment after the
financial crisis of 2008 was followed by part default, debt restructuring, lack
of working capital, and shrinking sales.
However, over the last one year the company seems to have put the
building blocks of its survival and growth in place: Suzlon,with no other
option, sold its prize asset, Senvion, to pay off long term debt, converted
some debt into equity, brought on board Dilip Sanghvi, the promoter of Sun
Pharma, arguably India's most successful pharma company as a significant
investor, and refocussed its strategy on the Indian market.
This time around it looks like margin funded investors in Suzlon stock
may have got it right.
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