This Insider Beats Promoters at the IPO Game - The 5 Minute WrapUp by Equitymaster
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This Insider Beats Promoters at the IPO Game

Aug 3, 2017
In this issue:
» RBI cuts key interest rates, what's next?
» GST rates could be clubbed
» ...and more!
00:00
Tanushree Banerjee, Co-Head of Research

An oil prospector died and went to heaven.

St Peter, who guards the gates of heaven, said... 'Well, I checked you out, and you meet all the qualifications. But there is one problem. We have some tough zoning laws up here, and we keep all the oil prospectors over in that pen. And as you can see, it is absolutely full. There is no room for you.

To that the prospector replied, 'Do you mind if I just say four words?'

St. Peter said, 'No harm in that.'

The prospector cupped his hands and yelled out, 'Oil discovered in hell!'

And of course, the lock came off the cage and all the prospectors rushed straight down.

St. Peter said, 'That is a pretty slick trick. Go right in, and make yourself at home. You have all the room in the world.'

The prospector paused for a minute, then said, 'No, I think I will go along with the rest of the boys. There might be some truth to that rumour after all.'

Promoters of unlisted companies often find themselves in the shoes of the oil prospector...

They toil hard for the success of their companies. They have skin in the game. And they often have to endorse the business hard to raise money from investors.

But in doing so, they sometimes start believing their own half-truths.

IPOs are like a litmus test for promoters. It's time for them to up their ante. They must offer a piece of their business to outsiders only at the most deserving price. Therefore, to find a promoter letting go of his stake at a discount is rare. As Buffett said...

  • It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).

Beating the insider (read promoter) is a tough game.

Most investors either believe the IPO fairy tales or willingly cough up much more than what the piece of business truly deserves.

Making money from overpriced IPOs then becomes a matter of speculative luck rather than an intelligent decision. And the luck runs out when the market runs out of greater fools...

As you know, I am not a believer in chasing 'speculative luck'. And as my reader you also know that I would never let you be 'the greater fool.'

So I'm going to connect you with somebody who can help you win the IPO game. An insider who closely scrutinizes businesses debuting on the bourses. Who is backed by a team of analysts studying whether the business can earn higher return on capital with the money you invest in it.

He tells readers straight whether the price they pay for a share of the businesses factors in all the risks and the returns.

And this insider is completely independent. He is not on the payrolls of the listing companies...not associated with them in any way. He has nothing to gain or lose from the IPOs. And he has no patience for half-truths...

He's an insider of the world of financial analysis with access to the best IPO analysis in India.

And by unveiling the real face and worth of the companies behind these IPOs, this insider beats the promoters at their own game.

Get on the Insider's list now.

03:30 Chart of the Day

The Reserve Bank of India's (RBI) monetary policy statement is one of the most tracked events in the financial world. With both core and retail inflation easing to new lows, a rate cut in key interest rates was widely expected. The RBI did not disappoint and announced a quarter of a percentage point cut.

The decision is in line with the RBI's neutral monetary policy stance, tracking the rate of inflation.

The chart below shows how India's inflation and policy rates stand in comparison with other Asian economies.

India's Policy Rates Compared to Asian Economies

However, the central bank in its monetary policy statement expects inflation to rebound soon.

The RBI's monetary statement in June had projected quarterly average inflation in the range of 2-3.5% in the first half of fiscal 2018, and 3.5-4.5% in the second half. Now it expects inflation to be about 4% by the year end. As long as inflation follows this track, the possibilities of rate cuts during this fiscal year remain slim.

Rate cut or not, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus on the fundamentals and the underlying business strength of companies. The ValuePro team is always on the lookout for all-weather stocks whose fortunes are not tied to economic cycles.

04:20

On the Goods and Services tax (GST) front, the finance minister indicated that the government could rationalise the tax rates and combine the 12% and 18% slabs into one. The current GST has 5%, 12%, 18%, and 28% rates, plus one for luxury and sin goods. There are some that are zero rated, or nil rate.

In our view, the GST regime is very fluid at the moment with constant changes adding to uncertainty. The government will do well to solidify the tax structure and focus on robust implementation at the earliest.

GST is a complicated topic, the exact implications of which will be obvious over the next few years. Our colleague Vivek Kaul has studied the finer aspects of GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

04:45

After opening the day in red, Indian equity markets continued to trade down. At the time of writing, the BSE Sensex was down 155 points and the NSE Nifty was down 44 points. Sectoral indices are trading on a mixed note with the metal and banking sectors leading the losses.

04:55 Today's Investment Mantra

"Investing is the intersection of economics and psychology" - Seth Klarman

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst).

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