Shares of Vodafone Idea have been seeing sharp swings as the stock’s drop to a penny stock has attracted several speculative traders as well as retail investors looking to make quick gains from short moves on the counters.
“There has been lot of speculation over the stock as it is in an industry, where other players are doing well. Its presence in the futures and options (F&O) segment has allowed traders to place bets on the directional move of the stock price in short-term,” said Deepak Jasani, head-retail research at HDFC Securities.
Experts add, given the stock’s high lot size of 98,000 shares, F&O traders are looking to make sizeable gains from a five-ten paise move on the stock price.
“Retail investors are of the view that the stock has fallen 95 per cent from its peak of 2018. They are expecting to gain from recovery and feel there could be limited downside from current levels. The low price is an incentive to them for multiple returns on small outgo,” Jasani added.
Reports of Google considering investing in the telecom major have also led to more trading activity on the counter. The report on May 29 led to a 35 per cent jump in that day’s trade, while officially there has not been any confirmation yet. Since then, shares of Vodafone Idea had more than doubled before Tuesday’s drop.
Analysts say retail investors need to be wary as given the large quantum of debt on the company’s books, such bets could backfire unless investors are able to efficiently time their entry and exits.
According to company’s 2019 annual report, the company had net debt of Rs 1.18 trillion as of March 31, 2019.
“Earlier there were concerns over the company going belly up and that was getting reflected in the valuations. However, now markets are considering that the company could survive even though with a weakened financial position,” said Ajay Bodke, CEO- PMS Prabhudas Lilladher.
On Tuesday, the stock closed 16 per cent lower at Rs 10 on the NSE. Experts attributed this to savvy traders booking profits on the counter.
In the F&O segment on Tuesday, there was heavy open interest in put options of the stock for a strike price of Rs 5-Rs 9, indicating that traders are expecting further drop in the stock price.
The shares of Vodafone Idea came under renewed pressure towards October-end last year, when the Supreme Court upheld additional gross revenue (AGR)-related liabilities of Rs 50,000 crore for the telecom company.