It says a lot about an IPO of a company when the world's foremost stock speculator gives it a deliberate miss. The company: Facebook. The speculator: Warren Buffett, chairman and CEO, Berkshire Hathaway, who's made it amply clear that he would rather wait and watch for the social network company's debut stock offering before putting his money in to it.
That, however, is not deterring several Indian high networth individuals (HNIs) - people who have an investable surplus of Rs. 5 crore - from making a beeline to their wealth advisers, getting them to invest their expendable money into the world's most hyped stock in the recent times. So is it a case of fools rushing where angels fear to tread?
"Not really, if people have a long-term view, anywhere between a time horizon of three to five years," said the business head of a wealth management company. That's because he says the IPO share price band at $28-35 leaves little on the table for investors for listing gains.
Moreover, he adds, the rupee depreciation has come like a double whammy on top of the high valuation.
Raghvendra Nath, MD, Ladderup Wealth Management, says unlike Google, Facebook's revenue model is not very strong. "From a valuation perspective, there are hardly any gains foreseen for the next 6 months to one year" he said. His timeline for returns: at least 7 to 10 years.
Facebook has seen a 43% decline in its revenue growth rate from 2009 to 2011 and expects the rate of growth to decline further. The company closed 2011 with revenues of $3.7 billion and a net profit of $1 billion.
According to Kapil Narang, COO, Ameriprise Financial India, "Only a small percentage of ultra-HNI clients have expressed interest." While he declined to comment on the individual merits of the stock, he said that equity asset classes typically require an investment time frame of three to five years for decent returns.
So what should investors in India do? "It's better to go for Facebook IPO after the listing as the picture will be clearer about the valuation," said Anshu Kapoor, head, private wealth management, Edelweiss Capital.