The listing of Reliance Power scrip today, 11th Feb 2008, is an eye opener for investors and speculators in the market. When the issue was open for subscription people quoted premiums of 400/share in grey markets in India. This was at an issue price of Rs. 450/Share which gave astronomical valuations to a company that would add substantial revenuer only after 3-4 years from now leave aside a discussion of profits.
How did Anil Ambani pull of the ipo? Quiete easily played the Dhiru Bhai Ambani card, he went from one public gathering to another saying "Papa kahte the......", what "Bada naam karega". He did manage to do so, who knows by hook or crook. Prior to the issue the scrips of all his group companies Reliance Energy, Reliance Capital and Reliance Communications soared anywhere between 100%-300%. There were rumours that he may be himself operating in these stocks. This is hard to find out or trace but with the deep pockets that he has its not ruled out. The valuations of the group rose so did the valuations of the proposed company.
But is this phenomenon new to India, I would beg to differ. Last two years saw a glut of ipo's and people making listing gains and what not. A general investor would say "Future capital main lagao bahut acha share hai" or "Reliance Power main lagao double paise ho jaenge"...and I will say to them why?!!! I saw people sitting on footpaths at Connaught Place in Delhi to fill the forms for this IPO. Many of them opened their demat accounts for the first time.
Who cares till the point you make pots of money. Fundamentals and SOTP (Sum Of The Parts) as applicable for a business like Reliance Power took backseat. But only one bad month in stock markets and we saw big issue being called off, prices being slashed for IPOs and who knows what fate lies ahead for IPOs like GMR Power, MCX etc. My assesment says they won't find buyers. Though MCX would be one business I will really be bullish on.
Whats interesting is the fact that almost 8 lk crore rupees came for subscription to the IPO of around 10-12k Crore rupees, but today the scrip is opened with a discount to issue price and the scrip's price is struggling to cross ipo price. Which brings into question the 7.9lk crore rupees which was returned to investors. The answer may lie in the fact that the institutional section of the ipo which was 50% of the size only requires commitments hence the money was committed but not transferred. So could be it be manipulation by the institutions including Anil's group? All said its the first IPO of the entire Reliance Group which is trading below issue price ever. Personally I don't count Anil's group as the Dhiru Bhai Group, that legacy stays with Mukesh.
Domino Effect in Equities: People may have made losses in IPO/S and now they are selling in cash market on other scrips to cover losses. These losses become bigger and bigger as you increase leverage. When such things happen the entire section of good scrips is also bruised.
Whats gone wrong with the equity markets presently does not look likely to start becoming favorable in near future. It should take 5-6 months for some concrete positive developments to happen. Every rate cut/rise takes that much amount of period to factor into growth/decelarating effect on economy/ies.
Hence all these rate cuts which have been announced/will be announced will take that much time to boost global growth. Then who knows the markets will fire again.
Systemically everything looks ok with the Indian economy so no worries of subprime etc. Its the sentiment which is shaken, and it will take its own sweet time to heal.
Top Picks: Reliance Industries, Gateway Distriparks, GE Shipping and all others that have been mentioned earlier in the blog
Disclaimer: Same as always..
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