More than three years of record breaking wealth creation on the stock market has every investor wondering how much money can still be made, and how. A quick answer is—a lot and without taking too much risk. The recently closed initial public offerings (IPOs) of Reliance Power and Future Capital point to what we are talking of. That IPOs can be a treasure trove for investors is something we have already said in this magazine (issue dated 30 November 2006 available at www.moneytoday.in).
|“Some adjustments in income tax slabs could be made but not any substantial reduction in rates” — C Rangarajan, Prime Minister’s Economic Advisory Council chairman|
|“We expect the interest rates to drop in the first quarter.After that we will see if we can write down the rates [for our customers]” — V Kamath, CEO and managing director, ICICI Bank|
|“Everybody is entering equities as penny stocks worth Rs 5-10 are rallying.You are getting 100-200% in a month’s time on shares” -Krishna K Nathani, managing director Indiabullion.com|
|"From a long-term perspective staying invested in realty for 5-7 years likely to yield returns” — Sutapa Banerjee, senior VP, ABN Amro Bank|
|Source: Economic Times, The Telegraph, Reuters, Mail Today|
What is different now is the quantity and quality of public issues that are lined up in 2008. These IPOs and FPOs will suit investors of varying risk appetites and their diversification needs. In 2007, Rs 45,317 crore was raised through public issues—an all time record.
According to Prime Database, 2008 could boast a figure of Rs 70,000 crore, 50% more than 2007’s record. Another Rs 50,000 crore could be collected by new fund offers (NFOs) of mutual funds. So by December 2008, the big bang Reliance Power IPO could appear as no more than a trailer. On the quality of the forthcoming issues—a matter of higher relevance to retail investor than the number of offerings—two trends hold out hope.
Most of the forthcoming IPOs are from known promoters. Says Prithvi Haldea, chairman, Prime Database: “Unlike in the past, almost all issuers are from wellestablished companies planning to raise capital for expansion or disinvestment by venture capitalists.” Demerger of businesses, which is expected to pick up this year, will also bring some quality issues.
The companies planning IPOs are from diverse sectors (see tables), something of key relevance to investors looking to reduce risk through diversification. The rush to raise money has more to do with the fundamentals of the economy than promoters’ desire to cash in on investment frenzy generated by the secondary market.
The continuing pace of high economic growth fuelled by rising consumer demand—both domestic and exports—has most businesses committing huge investments. Most public issues will feed this investment demand. Yet all this doesn’t mean you can invest in any public issue with your eyes, ears and mind shut.
There are six thumb rules of investing and benefitting from IPOs that are elucidated in the issue mentioned earlier. These are specific to investors interested in shortterm gains. That’s not to say IPOs won’t deliver good returns in the long term, it’s just that your investment strategy will have to be different and similar to what you would adopt to pick up stocks in the secondary market—in short, betting on quality issues with sound management backing and strong business plans.
|IPOs in the next three months|
|EXPECTED DATE||COMPANY||ISSUE SIZE (Rs cr)|
|24-27 Jan||KNR Constructions||140-150|
|31 Jan - 6 Feb||Wockhardt Hospital||1,000|
|30-31 Jan||Manjushree Extrusions||35.7|
|Jan (last week)||Techpro Systems||250 (approx)|
|Jan-Feb||GSS America Infotech||150 (approx)|
|Jan-Feb||EMAAR MGF||5,000 (approx)|
|31 Jan - 5 Feb||IRB Infra Developers||1,100-1,150|
|4-7 Feb||Globus Spirit||68|
|4-8 Feb||SVEC Constructions||40-50|
|Feb (week 2)||Vascon Engineering||500 (approx)|
|Feb (week 2)||Jhaveri Flexo India||50|
|Feb (first half)||Onmobile Global||400|
|Feb-Mar||Rural Electrification Corporation||957|
|Approximate dates and issue sizes|
|Other IPOs in 2008|
|COMPANY||ISSUE SIZE (Rs cr)|
|State Bank of India||15,000|
|UTI Asset Management||4,000|