Bears covered part of their short positions in IEX on a day brokerage UBS maintained its buy rating on the stock with a target price of ₹200 a share. However, the stock remains volatile with NSE not permitting any fresh derivatives positions on the counter.
The UBS report on Monday came days after Antique Stock Broking downgraded IEX to sell and Nuvama maintained a “reduce” rating following the government’s move to finalise market coupling.
Market coupling involves an independent third-party aggregating buy/ sell bids to derive uniform market price across exchanges. This may eat into IEX’s market share, according to brokerage Nuvama, after government’s announcement on Wednesday.
However, UBS noted that the power ministry’s letter to Central Electricity Regulatory Commission (CERC) on 2 June on laying out procedure and expediting the execution of market coupling did not mention anything about timelines or market based economic dispatch (MBED).
“We see MBED execution could be difficult given complex settlement procedures, reluctance of discoms to get on-board etc…”
Despite the report and stock trading flat at ₹123.60 apiece, the huge amount of shorts means that the stock continues to remain in F&O ban. The ban means traders can’t initiate fresh positions on derivatives counter but can only square off existing positions.
This was observed on Monday with open positions (outstanding buy-sell orders) falling to 93.86% of marketwide position limits (MWPL) from 111% on Friday. The ban will be in place until open positions fall to 80% of MWPL, said a broker, requesting anonymity.
“The counter is likely to face heightened volatility, going by the ban,” he said.
Brokerage Nuvama in a report on 8 June, said, “Currently, IEX is the most trusted platform for electricity spot price determination in India, which is its business moat. However, introduction of a full-fledged market coupler implies an independent third-party will collate all buy/sell bids and derive a uniform market price across all exchanges. This potentially negates IEX’s ‘moat’, as other exchanges can eat into its market share over time. We reiterate our BRAVEHEART ‘REDUCE’ rating on the stock with a TP of INR127.”
The brokerage has factored in a volume CAGR of ~16% over FY24–30E…” …notably there are near-term headwinds from: i) implementation of market coupling; ii) high power price-driven shift in power volumes away from spot market to longer-duration instruments; and iii) rising competition.”
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Updated: 12 Jun 2023, 09:56 PM IST