NHPC- What Should You Do?

After the Mid-Caps were hammered on the street in the last two weeks, the Large-Cap companies are also not left out. NHPC's steep fall yesterday has indicated that the traders can take any stock down if they wish to. The management of NHPC came up with a usual clarification that there is nothing wrong with the fundamentals, as also nothing is off track with the Hydropower sector in the finance bill.

The clarification is, however, not convincing enough as the fall has taken the stock back to the mid 2012 valuations. Recently, two other stocks - CEBBCO and Core Education - also witnessed a similar fall and the companies were not able to find out what went wrong with the stocks.

It is not the valuations but the margins calls that have triggered the sharp fall in the stocks. The loans taken against the shares or the margin funding prompted the shift in the positions of big traders in these stocks. In case of NHPC, there are various reasons that may have triggered the fall in the stock price. The primary one being the market’s belief that the OFS of the company expected in this month may be priced between Rs 16-18 which the market has discounted yesterday. Secondly, the margins calls triggered in positions of big traders brought the stock down.

Another reason is related to the valuations. We spoke to a few dealers, institutional buy side analysts and experts and our understanding from these conversations is that the stock has shown a sharp run-up in the last six months, outperforming the broader index. While there was no change in the fundamentals, the sharp run-up was surprising. Some buyers may have booked profits in the scrip but that cannot be confirmed. The people we spoke to, however, said that the company seems an attractive buy at Rs 18 per share. The negative in the stock has already been discounted and it is available at a huge discount to the issue price.

The problem with NHPC is that the company has not commissioned large hydro projects. A few capacities have come up in the last quarter but that is not something that will give higher valuations to the scrip. While few experts are still positive on the scrip, we remain skeptical on the same. A fall like the recent one may not even give a chance to book profit in the scrip. We continue with our suggestion of avoiding the scrip.