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Rel Power public issue: the flipping game

While one would genuinely like to believe that it is an endorsement of India's growth story, I am sad to say it is more about riding the hype to make a quick buck, writes Udayan Mukherjee.

business Updated: Jan 16, 2008 15:54 IST
Udayan Mukherjee
Udayan Mukherjee

The Reliance Power issue was oversubscribed several times on day one, an event that should not have surprised anyone. While one would genuinely like to believe the Finance Minister's inference that it is an endorsement of India's growth story, I am sad to say it is more about riding the hype to make a quick buck. It may sound less lofty, but it is the truth.

The big carrot is the grey market price. In fact, more people may be aware of the grey market premium of Rs 400 than the issue price itself, such is the hype around the expected listing. There is an air of certainty about the listing price, almost a "guarantee" that nothing can go wrong. I hope nothing does. Nothing should, for pure retail applicants. They do not borrow to invest, so there is little price risk. Even if the stock does not go to Rs 1,000 as some people expect, I find it difficult to see how it will not list at a fairly substantial premium. Thus the quantum of profit may vary but there is little risk. For the rich investor, though, who is either putting in fully funded or partly funded applications, the exact listing price and quantum of oversubscrition and hence allotment determines the gains. These people want to sell on listing day and lock in profit. If the stock, for some reason, does not clear Rs 750 or high net worth individuals’ oversubscription tops 250-300 times, they may be in trouble. Institutional investors may not have a funding problem but make no mistake, many of them are applying simply to flip it post-listing. Sure, they may want to buy it later at much lower levels from an "investment" perspective if the market provides such an opportunity but right now, they just want a quick ride to Rs 900 like the rest of the herd. Does that mean there will be only sellers post-listing? Far from it. There will be several 29-year-old "hedge fund" managers who have joined the India party late, who can be sold pretty much anything at any price today. There can hardly be a market without such suckers.

Do not get me wrong, there is absolutely nothing wrong in trying to scalp an IPO. If it makes money, good for you. I have only two apprehensions: a) the single-minded focus on a grey market price as the sole basis of investing; and b) the ramifications such a complete dissociation from fundamental value could have for the health of the market. I wish you luck in the flipping game and hope you can jump off the footboard before the train leaves the station.