Considering the listing gains made by most stocks that got listed last year, going for listing gains does make sense. Dishman Pharmaceuticals (209 per cent premium on listing) and Power Trading Corp (179 per cent) are classic examples. But even here, if you had opted merely for listing gains, you would have missed out on the rest of journey.
At current market prices, Dishman Pharmaceuticals is up 252.40 per cent and Power Trading Corp is up 297.81 per cent. Indiabulls, for example, had a premium of 25.53 per cent on listing but the prices have gone up by 327.63 per cent as of now.
But things can go wrong, too, even in a bull market. Between the time the issue closes and its listing (a gap of nearly a month), market sentiment could change and new listings may not always list at a premium.
In fact, if the market turns unfavourable, the listing price could even be lower than the issue price. MSK Projects (-5.50 per cent) and Sah Petroleum (-4.86 per cent) are two scrips that listed at a discount, while Patni Computers (1.39 per cent) and Deccan Chronicle (4.04 per cent) could only manage modest listing gains.
On the other hand, if the market is buoyant, the stock could even list at unreasonably higher prices either because IPO financiers (brokers) are trying to find favourable exit levels, or because people who did not get allotment are buying on listing. These price spikes are artificial and thus it makes sense to exit.
On the other hand, a buy and hold strategy will work when the markets are on the rise and the company in question is fundamentally strong and valuations are attractive.
Also it helps to get a hang of what kind of response an IPO is likely to generate or how many times it could get oversubscribed. The level of oversubscription determines how many shares you are allotted.
In a booming market, when IPOs are dime a dozen and demand is huge, the only way you can grab your share is by getting your IPO financed. The idea here is to bid for a large amount with the help of financing because you will otherwise end up getting much lower allotments than what you applied for, depending on the level of oversubscription.
Most banks are willing to finance up to 50 per cent of the application amount (50 per cent margin) on a maximum amount of Rs 10 lakh. Interest rates on IPO financing schemes range from 12-16 per cent depending on the bank.
| Jet Airways: Waiting in the wings Jet Airways, the largest private sector domestic airline in India, has filed its draft red herring prospectus with Sebi (the Securities and Exchanges Board of India). It will offer 17,266,801 equity shares of Rs 10 each for cash at a price to be discovered through a book-building process. This includes a fresh issue of 14.24 million shares - the balance 3.02 million being an offer for sale by Tail Winds, the holding company. According to analysts, the issue aims to raise Rs 1,400-1,500 crore, which implies an issue price in the range of Rs 850-900 per share. Tail Winds, an Isle of Man company, currently holds over 99.99 per cent of the company's equity and is wholly owned by chairman and promoter Naresh Goyal. Jet Airways has reserved 1,200,000 equity shares for subscription by employees at the offer price. Thus the net offer to the public would be 16,066,801 shares. After the offer the company's capital would be 86,334, 011 equity shares of Rs 10 each. The IPO is expected to help Jet Airways raise funds for its international operations. The company commenced services in 1993 and has expansion plans for providing services in other parts of the world, apart from Colombo and Kathmandu where its services are already operational. In India it offers services to 40 destinations. Jet currently has a fleet of 34 Boeing 737s and eight ATR-72 aircraft. The company made a net profit of Rs 129.40 crore for the six months ended September 30, 2004, against a net loss of Rs 15.50 crore during the same period in the previous fiscal. For FY04, the company made a net profit of Rs 163.10 crore compared to a net loss of Rs 244.50 crore in FY03. The total revenues for FY04 rose 21 per cent to Rs 3565.70 crore. The company reported a positive EPS of Rs 19.44 in FY04 after a gap of two years. Even assuming a 20 per cent growth in FY06, the EPS will be Rs 23, which will discount the earnings by 36x. Based on an issue price of Rs 850, the company will be valued at Rs 7,300 crore. |