Reliance – IPO
Even though, I had finance as one of my specialization in MBA, I have been a little confused with the how heavily the Realinace Power IPO has been oversubscribed. I do nor remember exact numbers but I remember the IPO was at around Rs. 450 and the market was expecting it to be listed at Rs. 900-1000. Hence the frenzy to take part in the IPO by everybody. This suggests that either the company is stupid to sell its shares at Rs. 500 or the market is stupid to buy it at Rs. 1000 on listing. One can think of a 5-10% variation but almost 100% variation is beyond my understanding.
Is there a financial wizard out there who can explain this to me in rational logical terms or in terms of financial theory.
By the way, as suggested by some, why don’t people buy into REL instead.
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More thoughts on the IPO pricing of shares. Now Reliance Power says that its Board will decide on Feb 24 whether it will indirectly return money back to the shareholders in the form of Bonus Shares. It is very obvious that the issue was overpriced. Some siad so earlier but now everybody agrees that Reliance IPO was overpriced. I am a little surprised that Anil Ambani was taking unfair advantage of the Ambani name and dupe the investors. What does he need more money for? He could have played fair and sold the company shares at its fair value rather than take advantage of his name and the buoyant financial market.
As a number of people have commented in the recent past, there is a lot of manipulation in the financial markets. Take the case of Emaar-MGF issue. These guys reduce the price quite a bit and then withdraw. It means that they were also pricing their issue based not on the intrinsic value of the shares but on the buoyant market and the hype about real estate companies.
I think that there is something seriously wrong. As a friend of mine pointed out, how can Emaar-MGF reduce their price so drastically and get away with it. I believe SEBI should investigate the pricing method followed by these companies to price their shares and what factors were considered in doing so.
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Hi everybody.
I had earlier questioned the logic of shares prices of shares. The shares are trading over 20% below the issue price of Rs. 450. I have asked a number of people but nobody has been able to give a rational / logical explanation as why was there a such a hysteria to buy Reliance Power shares and why were people talking about almost a 100% on premium.
In fact, the way the valuation of companies was being done was clearly ridiculous. But I don’t think we will ever learn. Our greed gets the better of us. We always want to find easy way of making money and land up in a soup.
What I am also surprised about is that even leading financial newspapers were not responsible enough to analyze the situation and warn people of the risks. Instead, I think they were responsible for talking very positively about India’s growth especially the stock market.
In fact, I almost was sold on the idea of investing in Reliance Power because of reading all the newspaper reports. I hope next time the newspapers like Economic Times give a more realistic picture after analyzing the facts and not get carried away.
Avinash narula
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