Free Reports

Will you join the upcoming Rs 700 bn party?

Mar 3, 2015

In this issue:
» The sorry state of State Electricity Boards
» Telecom spectrum auctions begin tomorrow
» is China looking more like Japan?
» ...and more!

2014 was a historic year for the Indian markets. With a gain of about 30% the benchmark indices left the doom and gloom years of the UPA era behind it. Retail investors too returned to the markets. The rising tide lifted stocks, big and small alike, across sectors. However, there was one aspect of the Bull Run that lagged behind: the primary market. Consider this; in the whole of 2014 there were just five IPOs which raised a total of about Rs 12 bn. This was the lowest in over a decade!

Usually, a frothy IPO market is a sure sign of an overheated market. It should come as no surprise that giant public issues tend to coincide with market tops. We all remember the Reliance Power IPO in January 2008 which came as the market peaked at 21,000. Even the Coal India IPO in Nov 2010 had coincided with the market getting back to the 21,000 mark. Most of the time investors end up waiting for long to breakeven on such investments... if at all.

Well we believe that history will soon repeat itself. With the indices trading at 20 times earnings, corporate India is all set to go on a massive fund raising drive! If reports in the financial press are anything to go by, about Rs 20 bn could be raised in this month itself. And that would be just the beginning. A staggering Rs 700 bn worth of IPOs, QIPs, FPOs and rights issues are lined up for 2015. This is excluding the government's disinvestment program.

This bit of news comes as no surprise to us. We have seen this sort of party before and it has never had a happy ending. We don't want to sound pessimistic but experience has taught us to be cautious at these times. Most of the public issues to hit the markets soon, will see private equity (PE) investors exit in large numbers. They are playing it smart, as they always do. They made their investments at cheap or reasonable valuations. They are now looking to sell their overvalued shares to gullible retail investors with the promise of quick IPO profits. Do not fall into this trap!

We believe investing in IPOs must be done very selectively. The phrase 'Buyer Beware' rings true in such cases. Please note that we are not saying that all of the upcoming IPOs must be shunned. Some of the better issues, if available at reasonable valuations, can certainly be considered. However, make no mistake about the fact that most of them will be horribly overpriced. If you choose to play along, the chances are that you would be putting your personal finances at risk. So coming back to the question: do you really want to join the upcoming Rs 700 bn party?

Will you be putting your money into the slew of IPOs lined up in 2015? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
You Need To Know About These High Potential Stocks...

In the recent days, we have talked to you about the high returns that Small Cap stocks are capable of giving.

But seeing how investors are making returns like 1,811% in 5 years, 217% in 3 Years & 11 Months, 250% in 2 Years 1 month, we thought we should really bring this to your notice one more time.

Now, even though you may say that past performances don't guarantee future returns, we would still like you to know that over the years, this kind of High Potential Small cap Stocks have managed to give double and triple digit returns consistently.

And according to our research, there are some select small cap stocks like these that still have the potential to make you maximum profits.

So hurry and grab your Small cap stocks now!

The sooner you get them, the greater is the potential for profit.

Click here for full details...

An important economic event will get underway tomorrow. The government will start the bidding process for the 2015 telecom spectrum auctions. Not only will it be the biggest in terms of the quantum of airwaves being auctioned, it will also be the most important one in recent times. Why is it so important? Spectrum licenses of quite a few telcos will be expiring this year. Consider the scenario where your mobile operator fails to win back the expiring spectrum. We could be staring at such a nightmarish scenario.

In the auctions, India's three largest telecom operators Bharti Airtel, Vodafone India and Idea Cellular will battle it out with Mukesh Ambani's Reliance Jio Infocomm. This year's spectrum sales could raise anywhere between Rs 600 to Rs 900 bn for the government. Although the payout by the operators will be staggered; the government is all set to make a killing which will help to contain this year's fiscal deficit to 4.1% of GDP. However, for the telecom firms, it could end up as a battle for survival.

  Chart of the day
That India's power sector is riddled with a variety of problems is a fact well known. While the demand for power has only increased, the government has not been able to stick to its targets of power production. What more, there are considerable challenges on the distribution side as well. The most pressing case is the sorry state of affairs at State Electricity Boards (SEBs). SEBs have had to bear the burden of subsidies and have not been able to raise power tariffs. Indeed, as the chart shows, the amount of subsidies booked for SEBs has only increased over the years. As against this, the subsidy actually received has only been on the lower side. This has put a strain on the balance sheets of SEBs. Generation companies, too, are put under pressure as the plant load factor (PLF) comes down.

Indeed, unless quite a few of the issues relating to the power sector are resolved, the impact of this will be felt by banks too especially those who are considerably exposed to the power sector.

Sorry state of State Electricity Boards (SEBs)

Predictions in the past have been galore about how China is all set to topple the US as the world's main economic power. After all the Chinese economy then had been growing at a blistering pace, while growth in the US had been slowing down. But does the comparison to the US still stand? Or is China beginning to look more like Japan? An article on Bloomberg points out how the vulnerabilities in China at present look increasingly similar to those of Japan way back in 1990.

Indeed, China in recent times has been afflicted by a slew of problems such as an overheated property market, massive pile on of debt, bad loans and an overpriced stock market. From a longer term perspective, the gradually ageing population is also something that China will have to worry about. Pension and healthcare costs are bound to rise. This is pretty much akin to what Japan is facing now. While this is not enough to determine whether China too will suffer a lost decade, it goes without saying that the dragon nation is slowing down. And it could be a while before it starts growing at the pace it did in the past.

The Indian stock markets had a rather volatile trading session today as they oscillated to either side of yesterday's close. At the time of writing, the BSE-Sensex was trading up by around 113 points. Gains were largely seen in oil and gas, healthcare and IT stocks. As far as global markets are concerned, while Asian indices were trading mixed at the time of writing, the European indices were trading firm.

 Today's investing mantra
Owning stocks is like having children; don't get involved with more than you can handle" - Peter Lynch

This edition of The 5 Minute WrapUp is authored by Radhika Pandit.

Today's Premium Edition.

Key lessons from Buffett's 2014 letter to shareholders

The key lessons that we learnt from Warren Buffett's 2014 letter to shareholders.
Read On...Get Access

Recent Articles

How a Meeting with My Guru Gave Me a Whole New Perspective on Investing March 23, 2018
A meeting with Professor Sanjay Bakshi changed how I look at quality. How do you decide between a dividend paying company versus a high growth one?
Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them March 22, 2018
Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.
Stocks to Invest in Now...and if the Market Falls Some More March 21, 2018
If the stock market falls by 30%, it would be an excellent opportunity for you to load up on safe stocks as they have both downside protection and upside potential.
Turn Off Your TV to Make Money from Sensex 100,000 March 20, 2018
It is essential to do your own thinking when it comes to investing and ignore all the buzz...

Equitymaster requests your view! Post a comment on "Will you join the upcoming Rs 700 bn party?". Click here!

2 Responses to "Will you join the upcoming Rs 700 bn party?"

Dorairaj R

Mar 3, 2015

Wisest of all articles. But people easily forget the past.At least to save new breed of optimists, please publish this once in every fortnight;that would be the greatest service by you.

One suggestion;please advise SEBI new do's and dont's in fixing issue price so that the dangerous Reliance Power is not repeated.

Like (1)

kamlesh bhatt

Mar 3, 2015

It is experience that post issue, most of the shares could not hold issue price and thus investors found themselves trapped. So small investors having long term perspective should stay away.

Like (1)
Equitymaster requests your view! Post a comment on "Will you join the upcoming Rs 700 bn party?". Click here!
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
For the terms and conditions for research reports click here.
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.