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Saturday, April 14, 2012

IPO: It's Probably Over-priced!

Performance of recent IPO's in the Indian Stock Market has been dismal to say the least. Sample this, out of the last twenty IPO listing, only seven are in profit and thirteen stocks are in losses, six of which have lost more than 80% of their listing price.

This phenomena is going on from quite some time, where promoters of companies going for IPOs list at exorbitant prices and cash on quickly, thus leave investors holding worthless stocks which are down by 80% to 90%. The most common saying about IPO is rightly so: It's Probably Overpriced.

If you indeed want to own some of these firms, now is the time when the fall in their price is done, you can start nibbling in some of these names. e.g. look at Taksheel Solutions, which has crashed by 90% and is available at total market cap of just about 30 crores. They have reserves of about 75 crores, thus book value of share is higher than market price.

Or look at Tijaria polypipes, which has crashed by 86% to only Rs 7.9 per share now with market cap at Rs 19 crores only. The current Book Value is at about 26.24 per share, thus signifying value available in these battered stocks now. Strange are the ways of markets!

Thanks for reading this article.

1 comment:

  1. Here are my views,

    I don't know technicals. But as a general rule, why should I go for an IPO option? The ball will be in company court, I won't have price control, need to obey what ever company bids. Where as in a secondary market, I will be the judge. I will have much better valued stock in the market than going for IPO. Everything look great on the paper. The motto behind this decision was, missing wrong train is important than catching wrong train, isn't?

    It doesn't matter whether company has strong presence or a new player. As an example, look at the IPO of Reliance Power, most of my friends trapped at very high price (I guess Rs.450/-). Even today (about 5 years) they are unable to get their money. Alas, it is time to invest in RP, as its plants start yielding and future seems to be brighter (if no surprise of scams and price control :P).

    A personal note on the education related stocks. I feel education sector in India going to be multi-billion dolor business in coming years. A few picks in this category would be upcoming gems. I like the business model of MT Educare, Tree House education (but not the stocks), and there are unlisted private players too. Just see the contribution of MFs in MT Educare, their business model is attractive.

    I read your IPO experience in one of Telcoms stocks, do you suggest investing in IPOs?

    I want to know whether any benefits to an IPO investor than those bought in secondary market.


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