There was nothing wrong with Jagannadham Thununguntla‘s analysis but the case highlights the great uncertainty and risk involved in buying a MNC stock only on the basis that it would delist.
Honeywell Automation has been surging upwards on speculation that, pursuant to the SEBI’s law that a minimum of 25% must be held by the public for a stock to be listed, the promoters would prefer to delist the stock rather than to dilute their equity. The stock soared from a low of Rs. 1620 on 14.12.2011 to an all-time high of Rs. 3391 on 19.11.2012, giving gains in excess of 100% in less than a year.
Honeywell Automation joins a long list of MNC stocks that have disappointed investors by choosing to dilute rather than to delist.
Erstwhile de-listing favourites Fresenius Kabi Oncology, Disa India, Blue Dart and Xchanging Solutions have already sold promoter shares through a one-day Offer for Sale (OFS) window and diluted the promoter’s holding to the required 75 per cent.
The result is that MNC stocks have suddenly fallen out of favour and everyone is desperately trying to bail out before the bad news sinks in.
Blue Chip MNC stocks like Astrazeneca Pharma plunged 18.43% while Fairfield Atlas plunged 17.75%. Sharp India lost 13% while 3M India & Oracle Financial Services lost about 9% each. Other blue chip MNC stocks like Novartis, Gillette, BOC India, Elantas Beck India and Timken India were also soft.
One has to keep a watch on these stocks because if the selling turns into a frenzy, then there may be a golden opportunity waiting to be bought.