All these IPOs are robbing investors - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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All these IPOs are robbing investors 

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In this issue:
» Americans are obese, Indians are leaner
» CWG highlight India's pathetic infrastructure
» US is ignoring its debt and deficit problems
» Real estate developers and buyers do not see eye to eye
» ...and more!!


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00:00
 
SEBI chairman Mr. C.B. Bhave is a man on a mission. Especially, when it comes to protecting the rights of investors. And in his latest move, he has slammed investment bankers for robbing investors. This is for pricing initial public offers (IPOs) at astronomical valuations. More so, when the anguish of investors will deepen, in case there is a correction in the stockmarkets.

There have been a slew of IPOs that have hit the markets in the past one week. All of these are looking to capitalise on the buoyancy prevalent in the markets that have crossed the 20,000 mark for the first time since January 2008. Many of the promoters are looking to garner the best possible price for their stakes.

And this has caught the ire of Mr. Bhave. This is what he has to say, "In a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service."

We could not have agreed with him more. Investors should not fall for the gimmick that a rise in the number of IPOs means that stockmarkets are going to rise further. It is in times such as these, that investors will have to keep a cool head and not get carried away with all the noise. Valuations of not just IPOs but all stocks will have to be given a good, hard look. Only if they are available at attractive prices, should an investor then choose to put his money in them. This is of course, when all other parameters such as strong financials and good management also pass the test.

Do you think that the IPOs that have come out recently are robbing investors? Share your comments with us or post your comments on our Facebook page.

01:16  Chart of the day
 
As the rich nations have gotten richer, they have also become fatter. As today's chart of the day shows, US tops the list for having the most obese population, while Indians in contrast are much leaner. The reasons are not hard to find. With incomes rising, lifestyles have also seen a perceptible change. And although India in comparison lags much behind, the incidence of cardiovascular diseases and diabetes has been increasing. Little wonder then, that if one looks at the product portfolio of pharmaceutical companies across the world including India, most of the revenue generating products would cater to the obesity related diseases.

BMI=Body Mass Index
Data Source: The Economist

02:01
 
There is an old saying in corporate circles. One should raise money when it is available rather when it is needed. And no one would understand the wisdom behind this simple homily better than a clutch of real estate companies in India. These companies, almost a dozen of them, have been itching to hit the IPO market for quite some time now. However, their plans are presently being scuttled by a combination of high real estate prices and rising mortgage rates.

Most of these companies want to raise money and invest in new projects. But they already hold quite a bit of inventory. Besides, lowering prices too much may not be an option as land prices are setting new records every day. It isn't that there isn't demand for real estate. Government data has estimated India's housing shortfall to be as much as 26.5 m units. Almost 90% of this requirement is in the mid-to affordable segment, consisting of homes costing less than Rs 3 m. It is just that the developers and the buyers do not see eye to eye with respect to pricing on most occasions. And sadly, no solution seems to be in sight.

02:45
 
Amidst all the hosannas of India's rapid GDP growth, the Common Wealth Games (CWG) fiasco has exposed the country's soft underbelly in the most vivid manner possible. The acute infrastructure problems that lead to an appalling amount of loss in productivity have now been displayed on a global stage. Some estimates peg the loss at 2% of GDP annually. In other words, our GDP growth would have gone past the double digit mark by now if not for these infrastructure bottlenecks.

And it wouldn't be very far from the truth to say that the CWG debacle has now come to symbolise these problems that India faces. This is because like the CWG, most other big ticket projects in the country, whether it be highway building or power capacity expansion, have always faced similar obstacles. But all is not lost. The need of the hour is to fixate on the reasons behind each of the problems. And do whatever it takes to ensure that we put in place long term policies that eradicate the causes of these problems once and for all.

03:17
 
Debt and deficits are the most talked about words. The deadly combination of the two has been held responsible for the crisis in the developed world. European countries are going through trouble as they have too much debt and high deficits. But the good thing is that they realize the source of their troubles and are taking measures to correct the situation. However, what happens when you don't know the root cause of your problems? You keep repeating your mistakes and are headed for disaster. This is exactly what bestselling author, Nassim Nicholas Taleb thinks of the US. He feels that the US has a major deficit and debt problem but prefers to ignore it. In fact it is taking on more debt and taking policy measure that would just widen its deficit problem. In short, it is doing everything to head for a major disaster. With no one like IMF or ECB to keep a check on them, there is nothing to stop them from doing this.

03:48
 
And while still on the topic of the US, it is obvious that the country is in deep need for measures to jumpstart its sluggish economy. One way to do so is to push up inflation slightly. This will make it easier for the country to meet its large debt obligations and help stimulate consumption now versus later. Bernanke has been trying to do so by using very low interest rates and purchase of treasuries.

However, Paul Volcker, ex Fed Chair and special adviser to President Obama warns Bernanke that he might be setting the stage for future high inflation. Volcker opines, "I think we ought to be sure that we don't take actions that down the road might lead to an inflationary situation." However, he is not concerned by Fed's decision to buy long-term treasuries paper to boost the economy. He only hopes that the Fed does not overboard with it.

04:11
 
Barring China and Japan, key global markets ended the week on a firm note. Ending the week higher by 2.4%, the US market led the pack of gainers. India followed suit, with the BSE-Sensex recording another strong week with gains of 2.3%. Stocks in Europe performed well this week as UK, France and Germany ended with gains in the range of 1.4% to 1.6%.

This is the fourth weekly gain for US stocks. This is seemingly on the back of easing concerns over the health of the economy. Signs of improving demand for capital goods, technology products and consumer items are some of the factors behind this sentiment. Closer to home, gains in Hong Kong were seen on expectations of the city's economy to grow at a moderate pace this year.

Data Source: Kitco, Yahoo Finance


04:56  Weekend investing mantra
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring." - George Soros
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50 Responses to "All these IPOs are robbing investors"

K DESAI

Dec 17, 2010

Yes, the recent IPOs have been exorbitantly priced. They should be moderately priced to protect the interest of small individual investors.

Like 

Ramesh

Dec 17, 2010

what is hurting most is is the increase in subscription amount for IPOs from 1 Lakh to 2 Lakhs. All good IPOs are getting oversubscribed resulting in hardly any share allotment worth the money invested by Retail Investors.

This is what SEBi can do the least. kindly take action to decrease the maximum subscription amount for poor retail investors to say 1 Lakh or even to rs. 0.5 lakh otherwise the Rich high value investors will continue to invest in retsail category eating away their share.

there is also a case for increasing the total share for retail investors to say 50%.

Thanks.

Like 

Raj

Sep 30, 2010

Yes the theft has been noticed but the question is there is any policeman who will caught & stop them. The problem does not get solve by noticing.Nobody can stop these loots.Keep your mind open & take care.

Like 

jayeshkansara

Sep 27, 2010

yes they are robbing from investors

Like 

G.K.SHROTRIYA

Sep 27, 2010

Not only the big bulls cheat also the public sector co like NHPC was also one of them When these Govt own co can do this why not others follow the mark Mr CBBHAVE has teeth but not to bite the devile tycoons only to show that yes the investers protectd There is some to watcth the mishappening only after it is commited not ot check or prevent from being commited They are also the part of it after all they all have to survive

Like 

Manish Gandhi

Sep 27, 2010

yes except one or two IPO rest is bogus.

Like 

ARK Reddy

Sep 27, 2010

All IPOs cannot be bracketed and called as 'robbing investors'. Recent IPO by Electrosteel is one of the finest and sold at the face value. Reading the prospectus, the truth and the value of the projects will be known and understood.

Like 

K K NARIA

Sep 26, 2010

WHEN ANIL AMBANI ROBS THE INVESTORS (REMEBER-R POWER IPO), SEBI CLOSES ITS EYES.THEN WHY CANNOT OTHER PROMOTERS ? ARE THEY SECOND GRADE CORPORATE CITIZENS ?
AFTER ALL, IT IS THE GOVERNMENT WHO HAS ALLOWED FREE PRICING.

Like 

gkrk1948

Sep 26, 2010

Day light robbers !

Like 

Gopalan

Sep 26, 2010

I do agree with Mr. Chari. Thre should be some mechanism to indicate a price based on company and industry fundamentals. Or atleast to declare what the price would be if such a formula is adopted Vs the IPO offer price and leave it to investors to judge if we want the market to drive. Mr. Bhave have been doing a good job at SEBI to protect small investors. Trust he will think on this too. But due to his such moves, in his next term, if he is given an opportunity.

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