19 January 2008

The Golden Bird

Vibhas Pande has some startling insights on the latest power:

We are a wealthy nation! 'Soneki chidiya aa gayi hai!'( The golden birdie has arrived).The overwhelming response to Reliance Power IPO substantiates this fact. Let me put this in the proper perspective.

This IPO was for approx US $ 3 billion. It has been oversubscribed 67 times. That means approximately US $ 200 billion have moved towards this IPO. This is a huge amount. The retail portion was supposed to be 30% (US $ 1 billion). That has been oversubscribed 16 times. So retail investors like you and me have put in US $ 16 billion for this IPO.Let us first compare this US $ 200 billion number with other numbers.India's foreign exchange reserves are US$ 265 billion. And here there are US $ 200 billion for a single IPO.

The FII inflows for the entire year 2007 have not exceeded US $ 20 billion. This IPO has generated 10 times more that amount.George W Bush has announced a 'growth package' for the revival of American economy yesterday. That package is US$ 150 billion. Much lower than this amount generated here.

What does this mean for the future?

The money from the retail investors after refunds is not going to go back to the FDs and PPFs. It will soon be back in to the stock markets applying for quality stocks. The over subscription from HNI and QIB will also find its way back into the stock markets looking out for quality stocks.
Who are eyeing this money?

Many Indian and Foreign funds, promoters, banks, governments are going to look at this opportunity to tap this wealth. There are going to be many issues of quality stocks in the primary markets. There would also be promoters of dubious records trying to cash in on this wealth.

So what should we do?

We should just hold on to our stocks,mutual funds, land banks, gold, commodities, what have you. Move into quality assets and be patient. This flood of money is likely to raise asset prices to much higher levels. We can do some accumulation of good stocks in the meanwhile. Stocks that are ripe for unlocking value. Some names that come to my mind are Reliance Industries, HDFC,ICICI Bank, Larsen and Toubro. There are many more. GOI will also come out with some follow on offers of PSUs. The opportunity is huge.Hopefully our regulators and educators keep a check on the issues coming into the markets. Investor education and proper guidance remains the primary need of the hour. India and its retail investor have arrived on the scene.

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