The World This Week - 19th to 24th Oct, 2015

The World This Week - 19th to 24th Oct, 2015 from Karvy Private Wealth

RBI Monetary Policy Review June 2013

RBI Monetary Policy Review June 2013 from Karvy Private Wealth

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 Of these, three, or one-third, have been withdrawn and one is yet to be listed.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.

L & T arm will float Rs 1,100 cr in intra bonds

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India among the Top 5 Billionaires

Nothing hits the headlines more than news about billionaires and their wealth as people never miss to garner information on the rich

As per the 2011 Wealth Report here is a list of 5 countries with most billionaires.

1. USA
Number of billionaires: 396
Total Population: 307,006,550

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $48,000.

The United States is the largest importer of goods and third largest exporter, though exports per capita are relatively low.

The global economic downturn, the sub-prime mortgage crisis, investment bank failures, falling home prices, and tight credit pushed the United States into a recession by mid-2008.

2. China
Number of billionaires: 72
Total Population: 1,331,460,000

Since the introduction of market-based economic reforms in 1978, China has become the world's fastest-growing major economy and the world's largest exporter and second-largest importer of goods.

It is the world's second-largest economy, after the United States, by both nominal GDP and purchasing power parity.

Much newsprint has been dispensed recently discussing China racing past Japan to become the world's second-largest economy.

The second quarter of 2010 saw China's gross domestic product standing at $1.34 trillion and Japan's at $1.29 trillion.

3. Russia
Number of billionaires: 58
Total Population: 141,850,000

Russia has a market economy with enormous natural resources, particularly oil and natural gas.

It is the 10th largest economy in the world by nominal gross domestic product and the 6th largest by purchasing power parity.

Another problem is modernisation of infrastructure, ageing and inadequate after years of being neglected in the 1990s; the government has said $1 trillion will be invested in development of infrastructure by 2020.

4. India
Number of billionaires: 47
Total Population: 1,155,347,678

The Indian economy is the world's ninth-largest economy by nominal GDP and fourth largest economy by purchasing power parity.

India has become one of the fastest growing economies, and is considered a 'Newly Industrialised Country'.

However, poverty, illiteracy, corruption and inadequate public health still remain the country's major challenges.

5. Germany
Number of billionaires: 43
Total Population: 81,879,976

Germany has the world's fourth largest economy by nominal GDP and the fifth largest by purchasing power parity.

It is the second largest exporter and third largest importer of goods.

Germany has been the home of many influential scientists and inventors, and is known for its cultural and political history.

Source - Rediff.com
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