Market Watch: Winter’s tale: the legend of a big fall
So, the next time you get all excited about a foreign fund buying a stock at a lofty price, do remember that all of them had egg on their face with Reliance Power, writes Udayan Mukherjee.Updated: Feb 11, 2008 22:02 IST
What a shame. The stock that was supposed to double on listing actually lost a fifth of its market value on Day One. One sincerely hopes this ends the mindless flipping game that has dogged the IPO market through this bull run. When Anil Ambani and his investment bankers proudly spoke about how $190 billion had come in by way of subscription money, creating history, I had a sinking feeling this was coming. Now the truth is out.
Yesterday, all of $2.5 billion of Reliance Power stock got traded, cash and derivatives put together, and even that stock could not be absorbed. Where were those billions that had rushed in to subscribe it? If indeed that had come in to buy the great growth story in Indian power, has it all changed in barely a month? I said it then and I will say it again, these institutional bidders are a bunch of flippers with no regard for the paper they are buying. So, the next time you get all excited about a foreign fund buying a stock at a lofty price, do remember that all of them had egg on their face with Reliance Power. They are suckers who promoters and bankers have wrapped around their little fingers.
So now Anil Ambani has his cash sitting nice and pretty in the bank, raised at Rs 450, while you are holding the baby at Rs 370. Truly sad. Yet, do not feel even for a second that great "value" has emerged in that stock after the first cut. Rs 370 is lower than Rs 450, but not fair value for the stock. It still trades at just under five times expected book value for 20012-13, that is five years forward. You can buy NTPC today, with larger capacity on the ground at three times the book value. Reliance Power can fall to Rs 300 and still be expensive. It probably will, if it is not supported. Anil Ambani has fabulous businesses in his group, in Reliance Communications and Reliance Capital. Yet, I think he has played his cards all wrong with this IPO and severely dented the image of his ADA Group. The next time he approaches the market to raise capital, the memory of this debacle will haunt him.