Street signs: Traders eye Budget, Damani effect on stocks, and more

Derivatives traders are deploying strategies to profit from huge swings in stock prices typically seen on the day of the Union Budget

chart — Traders staring at BSE building.

2 min read Last Updated : Jan 26 2020 | 9:46 PM IST

Traders eye bounty from Budget

Derivatives traders are deploying strategies to profit from huge swings in stock prices typically seen on the day of the Union Budget. Market players say most traders using the so-called straddle strategy, which involves purchase of both call and put options of the same strike price and expiration date. “The straddle strategy will work if the market sees wild swings in either direction on the Budget day. In a rare event that the market reaction is muted, traders could lose money,” said an analyst. The market will be kept open on Saturday when the Budget will be presented.

ITI FPO discount a mirage

State-owned ITI’s follow-on offering (FPO) price was set at a discount of as much as 28 per cent to the secondary market price. However, the steep discount is just a mirage given the huge dilution, say market players. The company is offering about 181 million fresh shares in the FPO, which will result in 20 per cent dilution. On Friday, shares of ITI closed at Rs 91 compared to FPO price band of Rs 72-77 per share. Analysts say the stock price post dilution works out to less than Rs 80. “Post the FPO, the current market price will have to adjust given the huge dilution. Investors shouldn’t be swayed by the discount and only invest if they believe in the long-term potential,” says an analyst.

Damani effect on stock prices

Shares of Spencers Retail surged more than 20 per cent last week after it emerged that ace investor and Radhakishan Damani, promoter of Avenue Supermarts which operates DMart stores, has picked up 2 per cent stake in the Kolkata-based firm. Earlier this month, shares of India Cements had soared 7 per cent after shareholding data showed Damani had upped stake in the company by 3.4 percentage points. Brokers say Damani’s investment pattern has become a big trigger for market. “The Damani trade is gaining currency. Traders lap up shares of companies where they see the ace investors has invested,” says a broker.