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Cipla up 10%; F&O punters make a killing by guessing Q1 performance

Cipla up 10%; F&O punters make a killing by guessing Q1 performance

Cipla up 10%; F&O punters make a killing by guessing Q1 performance
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By CNBCTV18.com Aug 10, 2020 5:08 PM IST (Updated)

Usually, Cipla is not an F&O trader’s delight, because of low volumes in the derivatives segment. But that changed dramatically from the second week of July.

Cipla shares rallied nearly 10 percent to close at around Rs 798, as the market have a thumbs-up to the pharma major’s strong first quarter performance. The stock is off its 52-week high of Rs 814, but continues to see heavy volumes.

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A good part of the action is happening in the derivatives segment, where massive positions were built over the last three weeks. According to market chatter, some big traders were expecting Cipla to declare strong Q1 numbers.
Usually, Cipla is not an F&O trader’s delight, because of low volumes in the derivatives segment. But that changed dramatically from the second week of July, when traders suddenly took a fancy to the stock. (See graph below).
Open interest (outstanding positions in F&O) in Cipla futures, which used to be less than 1 lakh at the beginning of July, zoomed to over 10 million in a couple of weeks.
Pharma is clearly the flavor of (COVID) season, and that could partly explain the frenzied activity in the stock.
Most analysts are bullish on the stock, betting on a payoff in the company’s respiratory business.
Edelweiss has upgraded its price target for the stock to Rs 845 from Rs 730 earlier. Citi has upgraded its rating on the stock to buy pointing to improvement in the balance sheet, along with a stronger momentum for its respiratory drug sales in the US.
CLSA has raised its earnings per share estimates for Cipla but downgraded its rating on the stock saying that current valuations fully reflected the company’s strong financial performance.
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