Anybody for 'Instant Offer for sale'? - Views on News from Equitymaster

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Anybody for 'Instant Offer for sale'?

Jul 23, 2013

You may love instant coffee. But trust us, the latest fad of instant offers for sale of shares can leave a bad taste in the mouth of any serious investor! As if initial public offers (IPOs) have not had their share of destruction of investor wealth. The instant 'offer for sale (OFS)', manage to go a step ahead and lure gullible investors at short notice! The reason we are calling them instant OFS is because the investor is supposed to do several things within a span of less than 14 hours! And we thought only the Rapid Traders in Wall Street have the knack of doing so!

Well, the trend of these short notice OFS has been started by none other than the government. In the hope of getting quick fix solution to its disinvestment problem, the government started offering shares of PSUs through these offers. The catch was that the offer would be open for a single trading session. Now, since the offer for sale of shares is on listed companies, we understand that there is no need for 'price discovery' unlike in the case of IPOs. Hence even a single trading session is sufficient for investors to act. But should they act without informed decision making?

In several cases, the decision of going ahead with the offer, the date and the pricing of the offer is publicly announced just hours ahead of the start of the session. The pricing of the offer, in particular, is announced barely 12 to 14 hours before the start of the trading session. For investors not well versed with the business, the decision to participate or not in the offer for sale can be a hasty and tricky one.

The spate of OFS increased in recent months with SEBI mandating 25% public shareholding in listed firms. The government itself has come out with offer for sale in several large and small public undertakings, both for disinvestment and hiking public shareholding purposes.

Why is the regulator sleeping?

As against the BSE's guidelines to inform stock exchanges about the details of offer for sale at least 24 hours prior to the issue, not just the government but other promoters have willfully delayed the releases. The result being that prospective investors are grossly short of time to do their homework before investing in the stocks. The regulator, meanwhile, seems to be blissfully ignorant about the breach of guidelines. The excuse put forth by the companies of pricing the issue after the end of previous trading session is a rather lame one we believe.

What should investors do?

Even for companies that investors are well aware of, an investment decision without taking cognizance of valuations is fraught with risk. The valuations have to be evaluated not just with respect to past performance but also in light of the changes in economic and business dynamics. Hence, as in the case of every other stock, investors should consider only those OFS that allow them reasonable time to take informed decisions. They would rather be safe staying away from such instant offers than be sorry about a wrong decision.

Tanushree Banerjee

Tanushree Banerjee (Research Analyst), is the editor of Stock Select and, ValuePro Equitymaster's oldest recommendation services. She is also the editor of Equitymaster's most popular newsletter read by over 300,000 subscribers, The 5 Minute WrapUp. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.

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2 Responses to "Anybody for 'Instant Offer for sale'?"

preet sagar

Sep 6, 2013

many a small investors fall prey to high end picture projected by private IPO companies in collusion with SEBI,HNI etc and in line with FPO/OFS by govt PSUs,besides above psus, people have burnt their fingures in MMTC,Coal India FPO/OFS heavily. only solution is small investors should understand this game and completely keep away. Unfortunately Govt ropes in LIC at fag end who too have public money to spend without any remorse

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Ajay

Jul 23, 2013

The government themselves are the one who showed this way to other prviate. Earlier it was only the private companies were pricing the IPO very high valuations and spread the news to tap the retail investors.

But the current government has gone beyond that to trap the investors. Look at the price current price of NMDC, Sail, Nalco, Shipping corporation, NTPC post their FPO/OFS , it will clearly prove who is trapping the investors.

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