2005: The year of the IPO

India is booming..... Indian stock markets are booming.... our economy will grow by around 7% (higher than your Fixed Deposits).... and Indian companies will grow by 15% on an AVERAGE. Everything is on the positive and even the Congress is using BJP's slogan "Bharat Uday", only that they are caling it "Uday Bharat". So, many companies have chosen this time for their IPO (Initial Public Offering) and are looking at the Stock Market to help them in their UDAY (dawn).

As many companies have lined up to tap the PRIMARY MARKET (In stock market jargon, when you buy shares without intermediaries like stock exchanges and brokers, it is known as the Primary Market, and when you use them it is the Secondary Market). You can view the list of companies (http://www.sebi.gov.in/Index.jsp?contentDisp=RcIndex) who have already submitted their Draft Red-Herring Prospectus to the Regulators (for India its SEBI for the US its SEC) and you will surely be excited about investing in them.

But wait.... do you have enough money to put in ALL of them for "at least" a YEAR? Or are you just one of those who believes that there is easy money in IPOs? Well, whichever group you belong to you will have to face the question, " Do I have money to put in ALL of them ? Or will I be missing out on the better ones, later?"

Well, let’s take the example of those who are just interested in making easy money out of IPOs i.e. those who will sell their shares immediately after the listing of the company once they get the allotment. Now, take the case of my friend, who this week invested around Rs. 25,000/- in the JET IPO and Rs. 25,000/- in the UTV IPO. So, he has put a total of Rs. 50,000 in them. Now, we know that in 15 days, PNB is coming up with a second IPO and the buzz is that they will be offering shares at 15% discount! Similarly, perhaps JAYPEE group will also float their IPO soon. So the question now is, " Will my friend still have money left to put into these lucrative offers ?" I sincerely doubt... and whether or not he is allotted the shares, his money will be locked up for nearly a month.

So, what's in it for us? When there is a tsunami (well I was planning to use the word "flood", but tsunami is more fashionable these days) of IPOs, DO NOT put your money for listing gains but think of long-term investment gains. We have had many periods in the past when IPO floods came, many locked their money, and then it was difficult for them to get out of it! So, don’t miss a good business investment for not so good ones.

Decide on your investable money and time frame (Year/Half-Year/Quarter). Look up the SEBI site, to see who are in queue for IPOs. Listen to your heart... Listen to your brain… Listen to your stomach (that is what Peter Lynch says, "What is needed for investing is good stomach and not brain and heart" ). IPOs (as with any investment) are not about gains but about companies.... Do you like the company?... Do you like the business they are in?... Are you a possible consumer of their services/products?... and if yes, will you use their products/services?....Do you believe that they will grow?

Compare the RELATIVE (Not absolute price like Jet's 1125 or UTVs 130, but compare some financial ratios with competitors) prices; are they cheap or costly?.... and so on.... you will have many questions regarding them and you have to search the answers for them on your own....

We will try to take up a few of those questions in the coming weeks. I believe this year is the Year of IPOs..... and Vibe's readers must be prepared to reap maximum benefit at a minimum risk from this.

I will end this by remembering the Oracle of Omaha (search him up on msn/google), who says “Good Investing is all about saying NO more often”.



At 1:40 AM, Anonymous nitin said...

thank god for ur article. i will hold on to my money to look for good opportunities and not just any IPO.

give us some more good advice like this...

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