Rationalisation of Rules in Periodic Call Auctions for Illiquid Scrips

Today SEBI came out with revised guidelines for Periodic Call Auction (PCAS) in equity market (Here).

Lets discuss some stocks which may make a comeback in normal segment from PCAS segment.

But before that Please refer (here) to understand the changes in PCAS Segment.

I believe more than 65% of stocks(415) which are there in PCAS segment in NSE will come out and 50 % of the BSE stocks(2337).

I believe that there will be a new price discovery in quality stock which will come out of PCAS.

Some Major stocks which can come out of PCAS segment, and which may have positive impact on its price are 

AHLEAST
AHLWEST
AMBIKCO
AUTOLITIND
BHARATGEAR
DENORA
EON
HINDCOMPOS
HINDNATGLS
HINDUJAFO
IGARASHI
IMPAL
ITDCEM
JBMA
JMTAUTOLTD
KAKATCEM
KALYANIFRG
KICL
KIRLOSIND
LUMAXAUTO
MOTOGENFIN
NIPPOBATRY
NSIL
PAEL
PHOENIXLL
PILANIINV
PIONDIST
PLASTIBLEN
PUNJABCHEM
RAIREKMOH
RANEENGINE
REVATHI
RSYSTEMS
RUPA
SUTLEJTEX
UNITEDTEA
WENDT
WILLAMAGOR

The List is not exhaustive . Also Please note that may stocks which are out of PCAS can still be traded to trade to trade basis.

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

PS : I don't have any positions in any of the stock mentioned above, except for Pioneer Distilleries Ltd.

Zee Entertainment : Reason for Backwardation ?

 Zee Entertainment is trading in Normal backwardation for Jan, 2014. 

The CMP is Rs 284.40  (Here)

In FO Dec 2013 Contract  286.00  (Here)

In FO Jan 2014  Contract  279.60   (Here)

It Implies a backwardation of almost Rs 6.00/-.   Why ?

This backwardation in stock lead me to think about the reasons of backwardation in this stock ?

The reason of this discounting was the expectation of Bonus Redeemable Preference Shares (RPS) (Here). The company has already declared RPS in may and market is expecting a go ahead from the court on 20th Dec, 2013. The date on which its case for issue of RPS is scheduled in Munbai High Court.

It seems logical that, If the court accepts the issue (In any case they will accept, it is the matter of time), the company can very well fix record date in Jan, 2014 and distribute the RPS. But Mumbai High Court Case no (CSPL/695/2013) has listed the matter as (Listed for Final hearing). Looking at past orders of other such cases in different courts, including Mumbai for such matters, I feel that court may have final hearing, but it may give a new date for final order (I have to admit, I am not a lawyer or have legal background, I am saying this based on my experience of analyzing mergers, acquisitions and takeovers of different companies, which also involves regulatory processes). The new date can be after few days or weeks, which may change the calculation of Ex- Date and hence the discounting.

Also I have a different view on adjustment of Corporate action on RPS by NSE on its derivative segment (Here) . It is perceived that since the face value of RPS is Rs 21/- , Which is less that 10 % of stock price of Rs 241/- (22 May, 2013). But I beg to differ that these RPS can be considered as dividend and benefit can be passed on in derivatives segment. Because Though the face value of RPS would be Rs 21/- (Rs1 * 21 RPS), But Its market value may be different because of different expectation of yield and duration of RPS. 

Based on above reason, The exchange may not reduce the amount as face value, but It may close all open position on eve of Ex date and issue fresh contract on Ex dates as in case of De- mergers. I again have to caution , that it is my view and exchange may look other way. Also there is precedence in past, where exchanged has looked the other way by giving the benefits as dividend (Issue by Bonus Debentures by Hindustan lever in 2003)

The Discount in Zee Entertainment, is because of perception and I have discussed the pro and Cons of such perception.

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

PS : I intend to take position in derivative segment of this stock.

Special Situation : Foursoft Ltd

Recently Foursoft paid a dividend of Rs 29/- per share after selling  its business. (Here)

Further they have declared their intention to reduce the capital by 50 % by returning 29/- per share. (Here)

After Paying this amount, It will be left with at least Rs 25 crores, which comes to around Rs 13/-.

Today, If I buy the shares @ Rs 16.20/-, I will be entitle of Rs 29/- for 1 shares out of every 2 share , also the cash lying residual with the company will be Rs 13/-. Hence the composite cash lying with the company is at least Rs 21/- per share. 

I don't intend to give discount to cash in this case as Four Soft has successfully, proven to given to give full cash to share holders. For More Information Here

Based on above logic, I expect a return of at least 15 % in next 6 months.

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

PS : I have taken position in stock.