World Aluminium Market
Traders go short on Hindalco as it breaches key support level
Edited by : AL CIRCLE
2 min read
Though some traders covered their short positions mid-way through the trading session ahead of the weekend, analysts said the sentiment in the stock remains pessimistic. "Hindalco futures have seen traders adding short positions below the crucial level of Rs 132.50, especially indicated by a jump in its open interest to 2.79 crore units," Shshank Mehta, derivatives strategist at Shah Investor's Home.
Mehta said traders also wrote Hindalco March calls at strikes 130 and 140, suggesting expectations of weakness in the stock. Analysts said the recent weakness in the stock has been partly because it is trading below its 200-day moving average since March 2.
The stock's current 200 DMA is at Rs145, said AK Prabhakar, senior VP, Anand Rathi Financial Services. A breach below this level means investors are willing to pay less than the average price paid in the past 200 consecutive days. Investors are worried that a delay in allocation of coal blocks will squeeze return ratios, especially when aluminium prices are under pressure, say analysts.
"Hindalco is banking on clearances for coal blocks, which are already slow in coming. This could now get more delayed in the aftermath of the CAG draft. That is a big risk for the company," said Bhavesh Chauhan, Angel Broking analyst.
HSBC Securities, in a recent note, said Mahan coal block, which is yet to be approved, needs to be operational for the company to log higher return on capital employed . The coal block will cater to the company's integrated Mahan aluminium project.
"We show that a fully integrated Mahan project at best will likely deliver a RoCE of only 9%, which, we note is lower than its current cost of capital," the report said. "With lower integration, we note that RoCE tends to fall further to 4%," it said.
Mehta said traders also wrote Hindalco March calls at strikes 130 and 140, suggesting expectations of weakness in the stock. Analysts said the recent weakness in the stock has been partly because it is trading below its 200-day moving average since March 2.
The stock's current 200 DMA is at Rs145, said AK Prabhakar, senior VP, Anand Rathi Financial Services. A breach below this level means investors are willing to pay less than the average price paid in the past 200 consecutive days. Investors are worried that a delay in allocation of coal blocks will squeeze return ratios, especially when aluminium prices are under pressure, say analysts.
"Hindalco is banking on clearances for coal blocks, which are already slow in coming. This could now get more delayed in the aftermath of the CAG draft. That is a big risk for the company," said Bhavesh Chauhan, Angel Broking analyst.
HSBC Securities, in a recent note, said Mahan coal block, which is yet to be approved, needs to be operational for the company to log higher return on capital employed . The coal block will cater to the company's integrated Mahan aluminium project.
"We show that a fully integrated Mahan project at best will likely deliver a RoCE of only 9%, which, we note is lower than its current cost of capital," the report said. "With lower integration, we note that RoCE tends to fall further to 4%," it said.
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