The Musk factor driving the Vodafone Idea stock

Vodafone Idea Ltd’s stock rose to a 52-week high on New Year’s Day to 18.42, amid news reports claiming that the government could sell its 33% stake in Vodafone Idea to tech-billionaire Elon Musk and his satellite internet venture Starlink collaborating with the carrier. Securities and Exchange Board of India (Sebi) sought a clarification from India’s third-largest telecom service provider on the development.

Though the stock saw huge delivery based buying over the two sessions , the Vodafone Idea futures contract didn’t witness much of a change in positions, indicating that traders in the futures segment might not have been as euphoric as those in the cash segment.

Over the past two trading days, the stock surged 28.3%, from 13.25 on 28 December to 17 on 1 January with the stock hitting an intraday high of 18.42 on Monday. It was the top traded stock on the NSE, accounting for a traded value of 3,095.6 crore, ahead of heavyweights like BHEL and Yes Bank, which benefited from the buzz surrounding Vodafone Idea, and HDFC Bank. On Friday, higher demand led to the stock surging by 21%.

Over the two sessions, the stock witnessed a delivery of 671 million shares. On Friday 407 million Vodafone shares were delivered, a level not seen in a year. Monday’s delivery of 264 million shares signalled continued interest after the stock rose 6.25% on a day the Nifty remained flat.

A Mumbai-based broker said increased activity on the cash counter was due to expectations of a global investor acquiring a stake in the struggling telecom services provider. Besides, expectations of spectrum fees waiver was considered as a significant cost-saving factor for the company. However, a government official said that no such discussions were communicated to the government, the single largest shareholder in the telco.

Following the sharp spike in trading in the volatile stock of the debt-laden, loss-making carrier, Sebi sought a clarification on the news reports.

This comes just a week after Gujarat health minister and spokesperson, Rushikesh Patel, said the state was in discussions with Musk on establishing Tesla’s manufacturing plant. Neither the state government nor Musk has made any statement on these discussions yet. To be sure, Starlink has applied for a global mobile personal communication by satellite services (GMPCS) licence, which maybe granted soon.

Vodafone Idea has not applied for a licence, which enables an entity to use satellites for providing broadband services. The Telecommunications Act allows for administrative allocation of spectrum for offering satellite broadband services.

Trade data indicates a sharp divergence between cash segment euphoria and futures activity. The open interest a gauge of outstanding buy-sell position in the futures market, showed minimal change over the last two sessions. Despite a substantial increase in the Vodafone stock on Friday, open interest for active future contracts fell by 0.43%. Similarly, on Monday, despite continued buying in the cash segment, the open interest declined only by an additional 2.39%.

IndiaCharts founder Rohit Srivastava said traders didn’t seem to have bought into rumours on the Street surrounding a global investor picking up a stake in Vi. “Normally, a bullish event would see far more short covering than what we have witnessed on the active futures contract in this case.”

Any activity indicating a positive event in a stock prompts short covering, with those holding bearish positions closing them. While closing a short position traders must repurchase it at a higher level, leading to increasing demand. However, in this case, only 53.3 million shares were shed from the open interest during 28 December and 1 January. Open interest at the end of trading on 1 January for active futures contract was 1.83 billion against 1.89 billion shares on 28 December.

Vodafone Idea did not respond to Mint’s queries on its plans to raise 20,000 crore till press time.

Mint had reported earlier this month that the carrier was unlikely to close its funding talks with investors within the financial year that have been ongoing for the past couple of quarters.

Vodafone Idea chief executive officer Akshaya Moondra said in the earnings call in October that promoters’ commitment to put in an additional 2,000 crore stood as is, and would come in alongside investments from external investors. He also said that the company was in discussions with three parties for external investment, which was expected by 2023-end. While the stated deadline has lapsed, fresh funding from promoters has not come in as well.

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