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Shares of Hindustan Unilever (HUL) rose to hit a 52-week high on Friday, a day after the conclusion of its share buyback issue, bucking expectations of a decline soon after the offer. Fund managers and analysts, however, maintain their bearish outlook for the stock, citing steep valuations and likelihood of declining profits in the quarters ahead as the main reasons.
The stock gained as much as five per cent to a high of Rs 631.95 a share. It then lost steam midway through the session, to close at Rs 609.15, up 1.4 per cent from its previous close. Analysts attribute the strength to covering of short positions, mounted in the past few days in anticipation of a fall in the stock soon after the offer ended. Traders were forced to cover their bearish bets after the initial strength.
“There is no reason why the stock should trade higher than (Rs ) 600 at this point,” said Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services. "At the same time, in the short term, the stock cannot fall below Rs 600 very quickly because those who wanted to sell at these levels have already sold and gone."
Investors and traders had sold their holdings prior to the open offer as they were expecting the stock to witness a decline upon its completion.
Market participants are unanimous in their bearish stance. "The valuation of the stock is expensive. The price went up post the announcement of the open offer and this has made people wary of this stock and stocks of this sector in general. They are holding on to stocks in this sector irrespective of valuations," said Sandip Sabharwal, chief executive of portfolio management services at Prabhudas Lilladher.
Analysts said the next trigger for the stock would be the first quarter earnings announcement this month. "Right now, the movement is sentiment-driven. From here, the corporate earnings growth will take over. If the company shows significant growth in this quarter, the stock price at Rs 600 will be justified," said Agrawal.
However, most analysts feel the earnings growth might disappoint, as the country sees a slowing in consumption. "We believe there are definite signs of a slowdown in the sector and are not expecting the company's results to beat expectations. We are advising investors to book profits in the stock at current levels," said Gaurav Dua, head of research at Sharekhan.
The company's open offer, concluded on Thursday, was intended to increase the promoter stake to 75 per cent from the present 52.48 per cent. It got about 320 million shares, compared to the 487 million it wanted. Yet, "the amount of shares tendered through the open offer was ahead of Street expectations. Though the open offer was not fully subscribed, the company has been able to achieve what it set out to achieve," said an analyst with a foreign brokerage.
STREET SMART
The stock gained as much as five per cent to a high of Rs 631.95 a share. It then lost steam midway through the session, to close at Rs 609.15, up 1.4 per cent from its previous close. Analysts attribute the strength to covering of short positions, mounted in the past few days in anticipation of a fall in the stock soon after the offer ended. Traders were forced to cover their bearish bets after the initial strength.
“There is no reason why the stock should trade higher than (Rs ) 600 at this point,” said Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services. "At the same time, in the short term, the stock cannot fall below Rs 600 very quickly because those who wanted to sell at these levels have already sold and gone."
Investors and traders had sold their holdings prior to the open offer as they were expecting the stock to witness a decline upon its completion.
Market participants are unanimous in their bearish stance. "The valuation of the stock is expensive. The price went up post the announcement of the open offer and this has made people wary of this stock and stocks of this sector in general. They are holding on to stocks in this sector irrespective of valuations," said Sandip Sabharwal, chief executive of portfolio management services at Prabhudas Lilladher.
Analysts said the next trigger for the stock would be the first quarter earnings announcement this month. "Right now, the movement is sentiment-driven. From here, the corporate earnings growth will take over. If the company shows significant growth in this quarter, the stock price at Rs 600 will be justified," said Agrawal.
However, most analysts feel the earnings growth might disappoint, as the country sees a slowing in consumption. "We believe there are definite signs of a slowdown in the sector and are not expecting the company's results to beat expectations. We are advising investors to book profits in the stock at current levels," said Gaurav Dua, head of research at Sharekhan.
The company's open offer, concluded on Thursday, was intended to increase the promoter stake to 75 per cent from the present 52.48 per cent. It got about 320 million shares, compared to the 487 million it wanted. Yet, "the amount of shares tendered through the open offer was ahead of Street expectations. Though the open offer was not fully subscribed, the company has been able to achieve what it set out to achieve," said an analyst with a foreign brokerage.
STREET SMART
- A day after the open offer, HUL stock hits 52-week high
- Analysts said the spurt was on the back of short-covering
- Several investors had already sold the stock in anticipation of a fall post the open offer, said analysts
- Outlook among investors continues to remain bearish
- All eyes now on corporate earnings
