Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Stockmarkets: Stay put... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 15, 2004

    Stockmarkets: Stay put...

    The government's divestment program through its secondary offerings in 6 public companies (IPCL, CMC, IBP, Dredging Corporation (DCI), GAIL and Oil and Natural Gas Corporation Limited (ONGC)) received a tremendous response. This is evident from the fact that these offers were oversubscribed several times in most of the issues (notwithstanding the recent fault detected in the stock exchanges software program that led to the over counting of subscriptions). Through this program, the government has managed to raise close to Rs 150 bn from the markets, which would help it not only meet its divestment target for FY04 but also assist it in keeping its fiscal deficit under check.

    For Retail
    Price on
    March 12, 2004
    % gains over
    allotment price
    Dredging Corp. 400 380 557 47%
    CMC 485 461 580 26%
    GAIL 195 185 226 22%
    IPCL 170 162 193 20%
    ONGC* 750 713 801 12%
    IBP 620 589 635 8%


    The benefits of this were not restricted to the government alone, as any government is prudent enough (especially before election times) to keep its populace happy and thus ensure its vote bank. The benefit to the retail investor in the government's divestment program is the fact that investors are allotted the shares at 5% below the offer price finally arrived at through the book-building process. This 5% advantage to the retail investor is in addition to the huge price differential prevailing between the retail offer price and the price of the stock listed on the stock markets (see table above).

    Moreover, the government made sure that its efforts at sustaining the existing feel-good factor was not affected by the act of any miscreant who intended to play mischief with the markets. This was evident from the government's intervention in the stock markets wherein the divestment minister publicly warned those who intended to form a bear cartel and affect prices of the stocks being offered. This action by the government was a reaction to the continuous drubbing of these public sector stocks on the bourses since the start of 2004 that had led to these stocks losing an average 26% from their highs of 2004 (for example, see IPCL chart below). During the same period, the Sensex lost 10%. However, the governments 'warning' not only took the financial markets by surprise but also led to a sharp bounce back in the shares of the above public offerings. All for the retail investor!

    However, now that all the issues are closed, the process of allotment of shares is already underway. However, considering the attractive price differential prevailing between the allotment price and that prevailing in the stock markets, it is very difficult to convince an investor to hold on to their stock rather than being content with the average 20%-25% gains he would fetch by selling his shares on the day of allotment. Thus, the effect of this sudden increase in supply of shares in these stocks post-allotment can be seen in the form of a substantial correction in the stock prices of these stocks during the previous week with the biggest loser being IPCL (down 14%) on twice the volume on the bourses as compared to the first week of the current month (see chart above).

    Going forward, a similar kind of investor behaviour cannot be ruled out in the case of other stocks also. However, it must be noted here that this kind of an activity is not restricted to only the secondary offerings but is also valid for new companies that get listed on the bourses e.g. Indraprastha Gas, TV Today, etc. This act of selling a stock, which is in demand, to earn profits in the first few days of its allotment/listing, is termed as 'flipping' in stock market parlance.

    However, we must point out here that for long-term investors, this should not be a cause for concern if the investor has invested in an IPO on the basis of the fundamentals of the stock. Thus, if the company has a sound business model and transparent management, capable of delivering and increasing shareholder value, then instead of getting satisfied with 20%-25% returns.... stay put!



    Equitymaster requests your view! Post a comment on "Stockmarkets: Stay put...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. 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.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)