Are company promoters seeing something that we aren't?
In this issue:
» The many OFSs lined up by the government
» Cyclical stocks become the favourites of mutual funds
» China readying itself to be the next cheap money factory
» ...and more!
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But this time around, despite the successive new highs that the indices have been making over the last few months and all the surrounding cheer, they remain strangely and conspicuously absent.
What are we talking about? The deluge of IPOs of course!
As they say, strike when the iron is hot. And with the markets 'hot' and investor excitement high, these are exactly the kind of times that promoters of companies patiently wait for to raise capital through IPOs. But curiously enough, they don't seem be this time.
Somehow, while investors seems to quite excited about the stock market right now, company promoters are in no hurry to sell equity in their companies yet. This begs the question - are the promoters seeing something that investors aren't?
One plausible reason may be that many companies don't need the fresh equity right now. With RBI data pointing towards industry wide capacity utilization being close to 70%, many companies may not be looking to make fresh investments just yet.
However, even a brief look at the past stock market cycles shows that a reason such as this has never really stopped the promoters of Indian companies from raising capital. They're quite adept instead at making the most hay while the sun still shines bright.
So, what gives then?
Perhaps it's just plain and simple greed. Maybe many promoters are holding back only because they're waiting for the markets to rise higher? So that they can get even better valuations while selling their equity.
Well, one can never really be sure about what is driving this trend. However, one thing is certain. If the latter is indeed the reason they are holding back, investors have much to be wary about. That's because if the market keeps rising, it's only a matter of time before the IPO deluge starts. And as and when it does start, valuations will likely be far far away from investor friendly!
Why do you think company promoters are holding back from coming out with IPOs? Let us know your comments or share your views in the Equitymaster Club.
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Traditionally the government, unlike its private sector peers, has not been the one to squeeze out the last nickel from its equity stake sales. In fact, it even offers discounts to retail investors. However, it is worth remembering that this in itself should not be the reason for you to invest in these PSU share sales. As always, you need to independently evaluate both the company and its valuations before you decide to put your hard earned money into these companies.
03:05 | Chart of the day | |
As data from SEBI, published by Mint shows, cyclical stocks have become the favourites of mutual funds in 2014. Most of the funds in India have allocated a disproportionately high proportion of their AUM to cyclical stocks last year. The obvious reason being expectation of higher GDP growth, fall in inflation and lower interest rates. The fact that banking and financial stocks comprised nearly a fourth of the AUM also shows them being overweight on the interest rate cycle. Well, if you ask us we are not terribly excited about the quality of loans in Indian banks. And therefore such a high allocation to one sector is definitely risky. Also we would not hesitate to remind you once again that the last time funds had such a high allocation to financial sector stocks was before the bubble burst in 2008.
Hence investors would do well to study the portfolio allocation of funds they have invested in to take the precautionary measures warranted.
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04:05 | ![]() | |
A cheaper yuan would boost exports and recalibrate growth engines away from excessive investment and debt. Thus even if the US Fed decides to curtail the liquidity tap, we will have new money printing factories in Japan and China make up for it. Needless to say the impact of the excess liquidity on asset prices is bound to be meaningful. And hence all the more importance for investors to be wary of asset bubbles.
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04:55 | Today's investing mantra |
Today's Premium Edition.
Does the capital raising make HDFC Bank attractive?
The impact that the Rs 98 bn capital raising will have on HDFC Bank's fundamentals and valuations.
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4 Responses to "Are company promoters seeing something that we aren't?"
O B Dias
Feb 7, 2015They are waiting for higher valuations. Which is good news for us longterm equity investors - we can hope to see our portfolio value go up.
Dinesh K
Feb 6, 2015of course, you and me are doing postmortem of financial figures and rationalizing future course of results, which in reality may be vastly different that thought of. Company promotors and KMP all linked to the business know how to/when to/ why to expand business activities and play their cards accordingly. remember only 2% of the public issues which came in 1980 and 1990 equity shares are now quoted. 98% have no quotes/are delisted/stopped business/vanished.Be vigilant, being vigilant is the only way to survive and earn in this market. accountability, ethics of promoters and KMPs are always to be questioned/ checked/ doubly cross checked and then investment should be made. God bless us to be rationale at all times.
R Tayal
Feb 6, 2015Another explanation could be the anticipated lukewarm response from retail investors, who having been singed over the last several years won't rush in at just any opportunity. So only the really good corporates will attract retail investors, not every Tom, Dick, & Harry.
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v p pandey
Feb 7, 2015There are two reasons for the promoters withholding the IPO IS- 1. The movement of market is too fast to hold the breath of investors . It goes 300 to 400 points in single day without giving the chance to retail investor to get in.
2.Though greed is there but investor is cautious also.