Jan 15’ 08, Mumbai. Reliance Power’s mega Initial Public Offering (IPO) worth Rs 11,700 crore was fully subscribed within minutes of the start of book building process. In fact, it was oversubscribed. It has received bids five times more than expectations. According to the market analysers, Reliance IPO will start with a busy period of capital raising. Investors are very much passionate about it. Market’s attitude reflects that they are not much keen on looking at the fundamentals or finer details of the issue. For them the Reliance brand is more than enough to trust their money with. The grey market premium for the IPO is at around Rs 450-500 but if you believe the brokers then the listing price would be nothing short of Rs 950-1,000. Experts say the issue is overpriced, as Reliance Power will start earning latest from December 2009 when its first generation unit, phase I of 600 MW Rosa Power project in Uttar Pradesh, goes into stream. That means, the stock until then will trade at zero earnings no matter at what price it will have an effective price-to-earnings multiple (P/E) of infinity. Retail investors can pay 25 percent of the issue price for 225 shares as part payment under the scheme exclusively meant for the retail customer. It works out to around 25 thousand rupees.Mr. Rajesh Jain, vice president of SMC Global, said “It has created an unprecedented euphoria in the market; the issue would be good option for retail investors who are looking for short term gain.”
Indian IPO volumes reached a record height in 2007 when new listings raised USD 8.3 billion from 91 issues, including real estate firm DLF`s USD 2.3 billion issue, which is so far India`s biggest IPO, according to data from Thomson Financial.
Mr. Nikunj Doshi, Investment Manager at Envision Capital, said, “The IPO is going to be very well received in the market, looking at the group`s aspirations and because investors have faith in their execution capabilities,”.
Indian companies are expected to raise USD 15.8 billion from 35 IPOs issues this year, almost twice as much as the record in 2007, according to Thomson Financial data. The standard index of the Bombay Stock Exchange rose 47.1 percent in 2007, recording its strongest growth in four years. It rose nearly 73 percent in 2003, 13 percent in 2004, 42 percent in 2005 and 46.7 percent in 2006. In comparison, South Korea`s Composite Stock Price Index gained 32 percent, China`s Shanghai Composite Index soared 97 percent and Japan`s Nikkei fell 11 percent in 2007.