|»5 Minute Wrap Up by Equitymaster|
On This Day - 14 NOVEMBER 2011
Is the relevance of stock markets reducing?
In this issue:
Will Italy be able to get back on its feet again?
Will Euro die faster than the Dollar?
Will China now replace US as the new superpower?
Know all that's going on in the global markets through the free daily financial e-column The Daily Reckoning.
Authored by Bill Bonner, a three-time New York Times best-selling author, the Daily Reckoning is published in 3 languages and is read by millions of people across the globe.
The trend is also apparent when one looks at the number of Initial Public Offerings (IPOs) that have hit the markets. In Europe and the US certainly, the number of fresh companies listing has dropped sharply in the past five years. Since 1999, there have been on average 192 IPOs a year, a start contrast compared with 547 a year in the 1990s. IPOs have played a role in employment creation too. According to FT, it is estimated that of all jobs created by public companies since the 1970s, 92% came after the floatation of shares. Further estimates point out that if IPO frequency had remained constant as a percentage of US gross domestic product, at least 22 m more jobs would have been created. And so many lament that the IPO is no longer performing its classic function of channelling capital to small start-up companies because of its high costs and the insistence of institutions on high liquidity.
There are other things too. For starters, post the crisis quite a few companies are probably focusing on being cash rich and are looking to fund any capex plans through internal accruals thereby obviating the need to raise capital from the stock markets. Irrational expectations from IPOs also abound. Many companies come out with IPOs at astronomical valuations which do not make it an attractive proposition for serious long term investors to invest in. A short term and speculative outlook also creates unnecessary volatility thereby detracting serious businesses from going in for a listing.
The IPO story in India is no different either. The heydeys before the global crisis saw IPOs emerging by the dozen in the markets. But post the crisis, many companies withdrew their listing plans citing market volatility. Another ill that afflicts Indian IPOs is the unrealistic price and the focus on 'listing gains' which hardly do much in rewarding shareholders in the long run. In fact, some of the IPOs in recent times (many of them being that of PSUs) have actually seen positive responses because of strong fundamentals and reasonable valuations. This in an economic environment that continues to remain uncertain. Indeed, if businesses are confident of what they want to do and remain realistic about the price that they hope for their shares, there is no reason why they will not garner investor interest even in such volatile times.
Banks are under pressure from various sectors like power and infrastructure which are seeing delays in execution. Export related sectors have also seen a slowdown on account of global uncertainty. The mining and aviation sector, which are big borrowers are also facing a cash crunch. However the RBI is confident that the banking sector is not facing any systemic threat. We hope that Indian banks can come out of this crisis as well as they did in 2008.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement
Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.
This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.
This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.
This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.
As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407