nil Dhirubhai Ambani Group (ADAG) company, the Rs 6,576-crore Reliance Energy (REL) today announced that it would buy back its shares through open market purchases at a maximum price of Rs 1,600 per share.
The announcement comes just after REL subsidiary Reliance Power, which listed below its offer prices on February 11, announced a bonus of 3:5 and ahead of more IPOs from the ADAG stable.
REL plans to spend up to Rs 2,000 crore to buy back its outstanding equity shares in two phases, after a proposal to this effect was approved today by the REL board.
A company press release said the price of Rs 1,600 represents a 30 per cent premium over the low of Rs 1225 recorded in 2007 and a ten per cent premium to the closing price on Wednesday.
The REL stock lost 3 per cent on Wednesday closing at Rs 1459.45 and this is the lowest closing price for REL in 2008. The price of Rs 1,225 was an intra-day low which the stock hit on January 22, 2008.
In the first phase, the company will spend Rs 800 crore, which amounts to 10 per cent of the company ’ s equity and free reserves.
For the second tranche of Rs 1,200 crore, which amounts to 15 per cent of the equity and free reserves of the company, REL will seek the necessary approvals from shareholders.
The shares will be bought on both the National and the Bombay Stock Exchanges.
REL’ s fully-diluted equity capital is Rs 279.53 crore.
This is the second buy-back offer by REL. It had announced a buyback in June 2004 for Rs 350 crore up to a maximum price of Rs 525 shares.
The offer was extended till June 2005 but the company ’ s balance sheet for 2004-05 said no shares were bought back.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
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