IPOs need to be priced right

The year 2012 has seen nine public issues so far. Of these, three, or one-third, have been withdrawn and one is yet to be listed. Of the remaining, four are trading at a discount and only one is above par. In 2011, 44 initial public offerings (IPOs) and three follow-on public offerings (FPOs) entered the market. And 11, or less than 24 per cent, are trading above issue price.

Price is the reason for investors to stay away from IPOs. There is a general sense of apathy among investors after having lost money in IPOs. This explains why the primary markets are in a bad shape. That the secondary markets are not doing well, either, is not helping investors. Markets, over the last 18 months, have not returned money to investors. Assets under management of equity funds have faced redemption pressure during this period.

The only way to rejuvenate the primary market is to get the IPO price right. So, what is the 'right price'? This is a difficult question and calls for some effort and sacrifice from the promoters and merchant bankers. The sacrifice would be in terms of the company's valuations, since if the amount raised is low, merchant bankers would earn that much lesser.

Every company tapping the capital markets has a peer group. The company and its business model would be comparable with this group. A fair price would be based on the company's earnings per share (EPS) compared to that of the peer group, with a discount (as an unlisted company comes with risks).The complaint of overpricing of IPOs against merchant bankers and promoters stems from the fact that the fees paid are linked to the company's valuation. Higher valuations fetch higher fees for bankers. So, merchant bankers push through a higher price for the IPO, with the help of media hype. Naturally, post-listing, the issue bombs.

SEBI does not allow future projections to be disclosed. Looking at the past numbers and peer group, one gets enough indications of a company's potential. To extrapolate the financials after a year of listing is easy. But one appreciates there are reasons like market conditions, which make predicting the forward price difficult.

It is easier to predict the performance of the company and its earnings. Analysts have been doing this regularly, with fairly decent accuracy. If the performance and earnings of a company are predictable and one has a decent peer group comparison, why can't the right price be arrived at by calculating backwards?Before SEBI, the Controller of Capital Issues (CCI) was the regulator. Merchant bankers had to explain to CCI why their issue commanded a higher valuation. There was a procedure and formula laid down for calculation of premium. One does not want to revisit the days of CCI. But further deterioration of the primary market is imminent, if the present overpricing regime continues.

In all, 181 listed entities would be floating issues worth Rs 27,000 crore by June 2013. Only then can the promoter shareholding be brought below the threshold limit of 75 per cent. If PSUs are also considered, the number grows by another Rs 12,000-13,000 crore. The combined figure of Rs 40,000 crore excludes fresh offerings from both private and government companies. With such a big pipeline, investors need to be choosy and pick only those with the right price.

The future will demand fair pricing from promoters and merchant bankers. These two also have to ensure they are available for discussion on the company's performance after listing. At the end of the day one should only invest in performing companies.

Rupee gains on hopes of shares rise!

The Indian rupee gained early on Wednesday boosted by hopes for a rise in local shares which could help bring in more foreign funds but the dollar's moves versus major units ahead of the Fed meet outcome would be closely eyed.

The partially convertible rupee was at 44.31/32 per dollar , stronger than its close of 44.37/38 on Tuesday. The euro struggled on  to push higher above $1.4000 against the U.S. dollar, which remained on the back foot as the Federal Reserve looked set to provide more stimulus to spur a flagging recovery.

Dealers, however, said some leftover refund of Coal India IPO oversubscription could limit sharp gains in the rupee. Almost $3.5 billion share sale was 15 times covered, with foreign investors being heavy buyers.

Source : ET

Coal India Limited would be the World’s biggest listed coal producer!

Coal India Limited is set to make history with Rs 15,200-cr IPO, Coal India’s initial public offering (IPO), the nations biggest and priced at a discount to global peers, is likely to attract investors and set the stage for it to become a global industry benchmark, akin to Brazil’s Vale in iron ore.

The government said investors can bid for Coal India (CIL) shares in the Rs 225-245 price band that will help it raise as much as Rs 15,200 crore. Ten per cent of the company, or 63.16 crore shares are on sale, which if priced at the top end, could make it the seventh most-valuable firm in whole of India with a market capitalization of $34 billion.

Coal India, with an output of 431 million tonnes a year, would be the world’s biggest listed coal producer. Its coal reserves are also the largest in the world with 10.6 billion tonnes compared with Peabody’s 9.3 billion tonnes and China’s Shenhua’s 7.4 billion tonnes.


Economic Times

5 thumb rules to become a great investor

Generally savvy investors have certain traits in common which makes them a pro at handling markets in all their variety, here’s what you need to know to be a great investor:

Understanding the Risk:
Understanding risk is essential to developing an investment strategy that works and produces repeatable performance over time. As individuals, we need to be aware of the times we are irrational in our thinking about investing.
By clearly understanding the potential for loss, investors can allocate their funds among long-term, mid-term, and short-term investments.

Understanding how emotions influence investing decisions:
A good investor has a plan, which is disciplined, which does not get caught up in unnecessary assumptions. Good investors do not allow their decisions to be ruled by emotions. The field of behavioral finance gives us some good insights into the most common mistakes people make and how to avoid them.

Diversification across asset classes and industry sectors:
A well-diversified portfolio includes large-company, mid-size, and small-company stocks. Both value and growth styles are reflected, as well as domestic and foreign stocks. Generally, you will overweight large cap investments, as they tend to have lower-risks than do mid- or small-cap stocks.
Research shows quite clearly that an equal weighting between value and growth styles of investing produces better returns over a longer period than does each style alone.

Timely re-balancing your portfolio:
Once you have your diversification model set up, it is important to stay the course. There will be times when you will feel you've erred as one style (value or growth), or one asset class (large cap or small cap) outshines the other.
The temptation is to add funds to the outperforming investment, or at the very least to let your winners run and sell your losers. Rather than doing either of these, the strategy that produces the best returns is to rebalance your portfolio yearly.

The importance of staying invested:
Besides rebalancing, you'll want to stay invested.
It's difficult, if not impossible, to time the market. So whatever portion you decide to put into equities should stay unless something changes in your personal situation requiring that you have less volatility and more income

Source : Rediff

11 IPO’s to hit the market, are you ready to take a leap?

People planning to invest money in primary market would have a number of choices to book their savings this month, as about a dozen of companies are expected to bring out their IPOs in September.

If you are planning to take a leap into the IPO market, here are some important things which you would have to keep in mind.
1. The promoter’s background: This is by far the most important element. However good the product, technology or market, it is the promoters who run the company. Find out about their track record, their other interests, and performance of other group companies in order to keep yourself well informed.

2. The company's balance sheet: If you want to be an investor, it's time to start reading and understanding a balance sheet. Pay attention to the topline and the bottomline, major variances; but most importantly, consider carefully the extraordinary items and notes to accounts.

3. Risk factors: Though risk factors are not very clearly spelt out, a careful reading would still give enough information of the downsides. Try to do an impact analysis of the critical risk factors.

4. Shareholding pattern: It is important to know who the major shareholders of the company are and what their shareholding pattern will be after the issue.

5. Value, not price or par: An offering at the face value of Rs 10 is not necessarily cheap. The 'par value' system often gives you the impression that no premium is being charged.

6. Compliance record and litigations: Find out whether group companies have been diligent in filing their returns to various bodies such as the stock exchanges and registrar of companies.
 The prospectus will disclose all major litigation cases filed against the company's directors and promoters, as well as against group companies. Avoid companies that are deeply mired in litigations.

7. Underwriters and investment bankers: Underwriters add to the issue's strength. An underwritten issue today does not denote weakness requiring an underwriting support, it shows that there are intermediaries who after assessing the risks have decided to back the issue.
 Also, before investing in an issue, look at the names of its investment bankers and check out their past track record.

Source : Rediff

The Intelligent Investor

Book Review

When it comes to the topic of investing, consider ‘The Intelligent Investor’ as the textbook of all the textbooks. This book is perhaps considered as the most important and influential book ever written about value investing.

Famous investor Warren Buffett describes it as "by far the best book on investing ever written". It is believed that the Author Benjamin Graham has put down really good ideas in the book.

Benjamin Grahams ‘The Intelligent Investor’ is a classic bestseller of the 20th century. It is a widely acclaimed book on Value Investing. A book that helps protect an investor against the areas of possible substantial error and teaches them to develop long-term strategies with which they will be comfortable down the road.

Author Benjamin Graham was an American Economist and professional investor himself. He is considered one of the first proponents of Value Investing. He began teaching Value Investing as a new investment approach at Columbia Business School in 1928. Many consider it as a Bible for Investment.

Whatever it may be, this book surely provides a great deal of information about investing.

Demystifying Direct tax code!

About the implication of DTC on personal taxation.

If you are thinking, what could be the implications of DTC on your personal taxation, here’s something that would give you an idea of the the deductions that you can consider and the ones that are amended under the Bill placed in parliament.

Eligible for deductions: Limit (1,00,000)
1. National Pension Scheme
2. Recognized Provident Fund
3. Superannuation Fund
4. Public Provident Fund

Eligible for deductions: Limit (50,000)
1. Mediclaim Insurance Premium
2. Life insurance Premium
3. Tution Fees(for up to 2 kids)

Deductions from Gross Total income is not available
1. House Loan repayment principle
2. ELSS (Tax saving equity mutual fund)
3. ULIP(Unit linked insurance plans)

Deduction of upto (1,50,000)
1. Interest on housing loan for self occupied property.

Tax Audit Limit
1. Profession- Rs 25 Lakhs; Business: Rs 1 Cr

Medical Reimbursement Benefit
1. Increase- (15,000- 50,000)

Wealth Tax
1. Exemption Limit ( 30Lakhs – 1 Cr)

House Rent allowance
1. Exemption is Available