What is an IPO (Initial public offering)?
- First sale of stock by a private company to the public.
- Often issued by smaller, younger companies seeking the capital to expand
- But can also be done by large privately owned companies looking to become publicly traded.
- In an IPO, the issuer takes help of an underwriting firm in determining the type of security that issuer wants to issue (common or preferred), the best offering price and the time to bring it to market.
- IPO is also referred to as a “public offering”.
What happened in 2011 ?
Due to weakness in the capital markets, Investors lost to the tune of Rs 4000 crores in IPOs in 2011.
In 2011, IPO market came as a big wealth destroyer with just 9 out of 39 public issues trading above their issue prices.
Some of the big failures of 2011:
1. Taksheel Solutions : Came out with a Rs 83 crore IPO was worth Rs 7 crore in Dec 2011 ! A decline of whooping 92% !
2. RDB Rasayans: IPO of Rs 36 crore was just worth Rs 4 crore in Dec 2011. A fall of 90 % !
As per Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities, “Such wealth erosion have made investors shy away from the public issue market, leading to shelving of several IPOs including the government PSU disinvestment plans. This huge wealth erosion may be attributable to tendencies of high pricing in public issues; and lower quality of public issues,”
The Story so far in 2012:
Vodafone: Vodafone India wanted to come up with IPO this year, but flotation in 2012 is highly unlikely as the company awaits final rules on a crucial airwaves auction
Facebook: The most hyped IPO of 2012 – Facebook lost 18% from its IPO price in the first two days of trading, thus leading to huge losses for investors !
Plastene India: In May this year, Plastene India is the third company to withdraw is IPO due to poor response from investors ! Before Plastene, Samvardhana Motherson Finance withdrew its IPO and Goodwill Hospital withdrew its IPO in January 2012.
Just Dial: Going further, Just Dial IPO is in pipeline. CRISIL Research has assigned Grade ‘5/5’ to the proposed IPO of Just Dial Ltd, indicating that the fundamentals of the IPO are ‘strong’. So, our readers can look forward to IPO of Just Dial.
RINL: According to the disinvestment plan, the government has planned to sell stake in RINL through an initial public offer (IPO). The RINL issue, was slated to hit the domestic market on July 3 and kick-start the ambitious disinvestment process of the government for the current fiscal. However, on account of volatile market conditions, the government had to delay the Rs 2,500-crore IPO of RINL by at least three weeks.
Government considering stake sale in 2012:
The government is considering stake sale in as many as 15 state-owned companies including bluechips like BHEL , SAIL and Oil India in the current fiscal with a view to garnering an estimated Rs 20,000 crore.
Apart from the major companies already on the government radar, the department of disinvestment is also mulling 10% stake sale in Engineers India, which could yield the exchequer about Rs 790 crore, Finance Ministry sources said.
In addition, the government is also planning 12.5% stake sale of Rashtriya Chemicals Limited (RCF) which would help the exchequer garner Rs 380 crore
What you can expect in 2012?
IPOs have been performing really bad for some time now. Though these IPOs may give short term benefits but low quality issues have made this market useless for long term investors.
We believe that the situation in 2012 will remain almost same as it was in 2011 and so we would advice our readers to stay away from IPOs in 2012.
To track recent updates on IPOs, you may visit: http://www.chittorgarh.com/ipo/ipo_list.asp
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