|»5 Minute Wrap Up by Equitymaster|
On This Day - 23 FEBRUARY 2011
And the worst performing IPOs are...
In this issue:
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Interestingly, not too many of these offers are doing well on the bourses. In fact, almost 72% of these offerings are trading way below their offer prices. But the worst performing IPOs were actually those that were backed by the private equity (PE) funds. As per a study conducted by a leading daily, 80% of the PE backed IPOs are trading below their offer price. One of the biggest reasons behind this that most of these firms were looking to make killer gains on their own investments. And the buoyant stock markets provided them with the perfect opportunity to do so.
As a result, most of the PE backed IPOs priced at ridiculously high valuations. And since they were marketed so well by the companies' promoters and other brokers, investors just lapped up the shares that were offered. But eventually the prices of these offerings corrected to reflect the company's fundamental strength in most cases. Therefore, while the PE firms made a 'killing', the investors got stuck with stock losses.
This brings us back to the main issue of valuations. It is the most important thing to look at while investing in a company. Even if the company is fundamentally sound has an excellent track record, fantastic growth prospects and an honest management, still it has to be available at cheap valuations to invest in. Unless the valuations are compelling, one should stay away from the best of stocks. Only then can one maximize his return on investment.
India's poor standing on the hunger front is despite the strong GDP growth rates clocked by the economy over the past few years. The situation is just going to get alarming as food prices continue to rise! Imagine the social unrest if nothing is done to alleviate the hunger of millions of Indians over the next few years.
Firstly, the tax slabs should be brought in line with the slabs proposed under the Direct Tax Code (DTC). The basic exemption limit should be raised from Rs 160,000 to Rs 200,000. For women and senior citizens, the limit should be raised to Rs 250,000 and Rs 300,000 respectively.
On a similar note, exemption limits for various allowances should be raised. The exemption limits were last revised in 1997. During the period between 1997 and 2011, the overall prices levels have shot up multifold. Hence, the exemption limits need to be brought in line with the market reality.
Also, individuals can currently claim deductions for specified investments only up to Rs 100,000. This should be further raised to Rs 200,000. This will have dual benefits. One, the common man will have a lesser tax burden. Two, it will give a great incentive to make investments which can then be meaningfully channelized to boost the economy.
Thus, we sit up and take notice when the company's CEO tells us that India has become the second fastest market for Rolls-Royce in Asia. This further reinforces the fact that India has certainly arrived, isn't it? We believe there is a small problem here. Sales of ultra premium cars like Rolls-Royce are booming all right but how would you reconcile this with the fact that overall car and two-wheeler penetration in India is lower than even other developing nations. Thus, is this trend of rapid growth of high end car sales a sign of India's arrival or the growing divide between the rich and poor in India? Sadly, the answer is not easy to find. This is because rapid economic growth makes it difficult to pin point whether all of the society is actually getting rich or only a few minority at the expense of the majority. The trend in vehicle sales does give an idea of the lopsided economic development. Thus, till such time as overall penetration in India improves, there is no point in rejoicing at the fact that Rolls-Royce is warming up to India.
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