MC Inside Edge: HNIs leverage arbitrage funds' heft in SAIL, operators trim Manappuram holdings, Dr Reddy’s bulls persevere

Know what stocks veteran bulls are eyeing, what the bears are ganging up against, major deals and all the inner goings-on from Dalal Street
 

Concentrated positions in SAIL futures are on the rise as a section of high networth individuals are sticking to their bullish view on the stock. Ten entities now account for roughly 40 percent of outstanding positions in futures. And they are getting good support from arbitrage schemes of mutual funds looking for risk-free profits.

To make the most profit by deploying the least capital, HNIs bullish on any stock prefer to load up on futures. And when liquidity in that stock's futures rises, arbitrage funds enter the fray by taking the opposite side of the trade: selling futures. It is a win-win for both parties. The conspiracy theory is that in some instances, HNIs are teaming up with arbitrage funds and assuring them of a rollover of the futures positions at an attractive rate of interest. The straightforward theory is that arbitrage funds are simply going by criteria of liquidity and returns while selecting stocks. Whichever the case, arbitrage funds also need to buy an equivalent quantity of shares to balance their position and lock in the profit. And when multiple arbitrage funds get drawn to such a play, the supply of shares in the system reduces, putting anupward pressure on the stock price.
The outlook on metals in general has turned positive of late, but copper and aluminium are the bigger favourites compared to steel.
Rising gold prices were supposed to drive Manappuram shares higher, as gold loan NBFCs in general would be able to lend more money for the same quantity of gold and earn higher profits. Manappuram’s March quarter numbers showed a healthy rise year-on-year, but the sequential comparison showed that high gold prices and reduced competition from banks is not aiding topline and bottomline growth to the extent as was expected. Some of the bull operators have trimmed their exposure to the stock for now, as evident from the more than halving of concentrated holdings in futures to below 10 percent.

Dr Reddy’s shares have been struggling for direction post Q4 earnings, but operator circles are not giving up the fight. The challenge they are facing is that the ADRs are quoting at a discount to the domestic market price. That makes it a cheaper option for foreign investors to buy in the ADR market, where volumes are decent. For the last couple of weeks, the stock has been firm in the first half of the session but struggles to sustain at higher levels once European markets open around noon.