Before going into Bharti Airtel, let me first tell you about another investment quickly so that we can compare the two. How one ended in a disaster and how we managed to succeed in a similar situation. Around March 2019, Arvind Fashions the demerged entity of Arvind Ltd listed on stock market. Shareholders got 1 share of Arvind Fashions for every 5 in parent company Arvind Ltd. The listing price settled at 600 Rs/sh much lower than expected fair value of 1050-1200 Rs/sh as propagated by news, media, operator and promoter network. The company was being compared to Aditya Birla Fashions and was being marketed as the only second player in premium, international fashion wear brand in the country. The reason for lower value of listing was a technical issue. Supposedly the exchange had set the base price on listing day same as that of the parent company Arvind Ltd from which it demerged without taking into account the demerger ratio of 1:5 and the fact that it is a completely different business of branded apparel vs raw textile commodity business of the parent company Arvind Ltd and hence commanded a much higher PE ratio. I was totally sold on the idea of the technical listing issue and hence the flawed valuation of the company. The company started hitting upper circuits all the way upto 1000 and finally the shares started trading after that. I started accumulating large chunks considering 1000 was the lower band of the 1050-1200 band marketed as the fair value of the company. My idea was to go big and earn a quick 5-10% in a short time. I had pumped in almost 30-40% of my portfolio into Arvind Fashions hoping to make a big gain in quick time. The stock continued to hover around the 950-1050 range for sometime. After that came the quarterly results time. Time to publish numbers instead of stories. The results were so shockingly bad that the stock straightaway hit 10% lower circuit on that day. With the lower circuit it took away 5% of my networth and no opportunity to exit. Next day there was a press conference on the results where the promoters who were until now talking about stars and moons immediately switched tone to saying that they expect the next quarter also to be challenging and then gradual improvement as they exit their low margin low profit business which actually was a large chunk of their total business. Next day the stock opened again at another 10% lower circuit and 10% of my networth was also gone with it in two days. After that the stock kept on sliding with a bearish bias. After suffering total despair for months I finally exited at around 600 Rs/sh compared to average cost price of 850-900 Rs/sh losing a total of approximately 30% of my networth (majority of it just in 2 days).
History repeats with Bharti Airtel
After the bitter experience with Arvind Fashions, I had decided not to take such large bets on a single counter. But stock market is a place of constant temptations. Inspite of having followed the rule religiously for around a year another opportunity caught my eye in Feb'2020. This time it was Bharti Airtel. This is the time when post corona pandemic India was experiencing huge global inflows from FTSE/MSCI as central banks around the world pumped the markets with infinite supply of free money running into trillions of dollars. Huge inflow was also expected in Bharti Airtel but it got cancelled couple of times due to foreign limit quota issues. Finally after few iterations of this dramma lasting over 3-4 months, the foriegn holding quota issues was resolved and it was announced that in the next MSCI rebalance cycle Airtel will get around $500-600 million inflow, approx3x avg daily volume.
To me this looked like a tempting opportunity because the stock was beaten down due to constant back and forth on the foreign inflows and finally we had a solid cnfirmation that this time the inflow is happening for sure with 100% guarantee. Although I was planning to play big on this news confirmation, I had kept my expectations low. I was targetting max 2-3% gains and I was going to build my positions slowly all the way upto the MSCI inflow day and I was not planning to hold my position even a day longer than the MSCI inflow day. My expectation was that with $600 million inflow we will get atleast one spike in the stock. Also Bharti Airtel was a much more higher quality, stable, low volatility stock compared to Arvind Fashions. Bharti Airtel was one of the stocks that was actually a beneficiary in the times of pandemic as work from home culture was picking up and more and more people were staying connected by phone and internet. Bharti Airtel was a leading service provider in both areas. Add to that while usually Airtely is a silent counter, it started churning out several positive news almost on a daily basis which added to my conviction that I will easily get a good upmove in this counter. From highest subscriber addition, 5G trials, stake sale in African subsidiary, PAT positive results after several quarter of losses, merger of DTH arm with parent company, induction of Warnberg Pincus as investor in parent company at a valuation of 600 rs/sh, several developments in Airtel Digital, multiple interviews with Sunil Mittal on TV and in media, targets from large fund houses ranging from 650-700 rs/sh, there was a flood of positive news flow in this counter that gave more and more confidence everyday in the trade. What happened on the MSCI inflow day was one of the biggest mindboggling shock of my life.
Bharti Airtel went nose diving on MSCI Inflow day crashing 4% on that day from 580 to 550. How and why? Looks like there were many players much larger than me who had accumulated positions in Bharti Airtel wanting to sell into the MSCI inflow. So on the day of MSCI inflow, Airtel instead of seeing 3x buy inflow saw 10x sell outflow.
In my defence the probability of something like this happening is very very low.It was a crazy day. It was an accident day. In 99.9% of the cases we should have seen a spike in Airtel and I should have easily made 2-3%. Instead I lost 4% on my large investment. Again. Many people must have gotten stuck in Airtel just like me. So the aftershocks came the next day and Airtel crashed another 6%.
Fighting back
This time I was not going to go down that easily. To me the moment the stock crashed at the MSCI inflow candle, one thing was absolutely clear. If the stock is crashing with $600 million of inflow then this stock is not going up anytime soon. It might fall more, it might recover, it might flatten out but it is not going up.
Immediately the same day I started shorting higher strike calls CE options in Airtel. I was so sure that Airtel is gone in the dumps that for 74 Lakhs worth of accumulated investment in Airtel, I shorted 70 lots of CEs, that is approx 7 crore of underlying collecting lakhs in premium. All the CE options expired worthless and I was able to compensate for the entire loss in the cash position in the same month.
After this Airtel flattened out, but did not recover from the severe fall. I kept on selling CE options every month to make some money out of the cash stuck in the position. This time I was less aggressive because I had compensated for my losses and Airtel had also stopped falling further, so I was writing only 1:1 ratio CE options against my cash holding as a fully covered call strategy. But after a month because of weak price performance of Airtel stock, the call option premiums dropped to very low values. This was not good enough for 74 Lakhs of cash stuck in the investment and another 10-20 Lakhs of margin required to short Call options. The ROI I was getting from call writing was not satisfactory anymore for the kind of investment that was stuck in Airtel.
I pledge not to be a victim
I was determined that this time I won't allow myself to be a victim of these stock market scams and manipulations. This time I will take what is my due from the market. So I pledged my entire holding in Airtel, that released 80% of the investment as cash to me. This I deployed into FnO trading which gave 4x leverage. I used this as margin to trade weekly options in Nifty and BankNifty which was anyways going good for me. I was earning 3-4% on this every month. So not only did I compensate for the entire loss within the same month, I got my cash released by pledging the shares and put it back to work without booking loss in the investment.
Compare this to the Arvind Fashion experience a year back where I was a helpless victim. My money was looted by this nexus of scamsters in news, media, operator and promoter and there was nothing I could do about it. I just had to accept my losses and live with the memory of how I was fooled and looted.
This is what investing and trading is all about. It is a game, it is a war and you win or you die in it and you have to fight to get your share in it. You cannot put your money in the market and hope that someday it will give you good returns. Market is full of scamsters forming a powerful nexus constantly scheming to loot that money from you through the market. So get up, don't look for safety in the market. Look for where the biggest fight is going on and jump into it! That's the way to play it.
BTW Bharti Airtel has made a decent recovery in the last month. From below 500 to near 570 and is very close to my average price of 580. If and when it crosses that I am sitting on a big pay day in Airtel on top of all the profits already collected from trading options and deploying the money from the pledged securities into index trading. This definitely could have turned into another major disaster for me but I fought back this time and now this qualifies for an awesome trading experience with a happy ending!
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