IPOs in India: Worth The Hype?

The first and foremost topic that comes to mind when I think of Personal Finance is the stock market, and more specifically the IPOs. In India, one should always follow this thumb rule for IPOs - Never ever put money in an IPO, more so if its from private sector. 


The reasons are pretty simple. The rational for IPO in an ideal world is for new and relatively small companies to fund their expansion, and hence offering relatively good growth potential compared with matured companies. In India, however, most promoters access the primary markets to offload their stakes, and only after the company has either already grown decently, or hasn't started as yet. There are very few of the actual IPO-worthy stocks. And, to make matters worse, the pricing of the IPOs are done pretty aggressively, and there is usually nothing left on the table. 


Little wonder most of the IPOs list in deep discounts in India, and they only tend to do well in absolute bubble scenarios. One exception could be the public sector companies which would be divested one by one - there the owner is government, and they do not have a 'personal' incentive to suck the last penny out from the investors. And secondly, they tend to offer some good discount to the retail investors as well. 


So, my mantra is, never go for an IPO in the first place. And if you must, because your neighbor's son is making millions in IPOs, then just limit yourself to the public sector divestment offerings only. As for the private sectors ones, if you can wait for a few months, you may have them for a good 15%-20% discount. 

2011: As I See It

It was always a game of confidence - all the dovish and/or hawkish comments are nothing but a way of conveying optimism to the markets. When the inflation concerns rise, the tone is hawkish, and when things heat up, they get dovish. There is never anything more to it - like most people Central Banks are also shooting in the dark. Its like a physicist's prescription - most of the time its hit and trial method. 


All that QE was intended to do was to create abundant liquidity, and confidence. That no matter what happens, the Central Bank would do anything and everything it can do. And it seems to be working. Money is flowing back to USA, and S&P is almost at its highest level in post-crisis period. Same is true for quite a few other major markets. Its a game of chicken everyone is playing - the underlying economy is still fragile, and there are lot of skeletons hidden in Eurozone as well. However, if 'somehow' governments succeed in keeping the confidence up that we will tide over the crisis, we eventually will. There is a difference between 2008 and 2011 - it was banks then, and its sovereigns now. The difference is that unlike banks, sovereigns can change the rules of the game, if need be. And thats a very big difference. Its not one Mexico defaulting, or one Argentina defaulting. Its a global scare, and any actions on the part of big sovereigns would certainly have endorsements from others. The issue of 'Wikileaks' is a case in point - if they don't like your actions, they would frame you under 'anything'. And George Soros of the world may have broken the bank of england, but it takes much more to break the Bank of the World. There are still chances of we plunging back into recession, but its just a 10% probability (though if it happens, they all hell will break loose), and best bet would be a 60%-70% Put. 


The second part of the debate is EM vs DM - where do we see money flowing to. I think it would again be EM this year, in spite of all the talks about DM coming back in vogue. EM countries still have very low allocations of global capital, and that is out of sync now with their share in world's GDP. There would an irreversible flow of capital to some of the larger EM nations just to get them to parity. A little of it happened in 2010, and I expect it to continue in 2011 as well. 


Apple reported some 70% growth in its revenues last quarter - well thats not an economy in recession. It just shows that the consumer confidence is back, and its high time financial markets also start displaying that confidence.