IPO dilemma - Reliance Power / Future Capital

Last year 112 stock got listed on Indian bourses and out of every 10 IPO listed on stock exchange 3 gave a return of more than 100%, five outperformed sensex and 3 are trading a loss of issue price. Primary market is luring retail investors like never before and paying a smart risk free return to investors. IPOs are selling like hot cake in India because of the simple reason that it gives easy money and if an investor puts his money smartly in selected IPOs, the chances of loss are minimal. But one thing that makes small investor reluctant to grab this opportunity of easy money is the likelihood of not getting allotment on application for IPO. Getting allotment in IPO is just like lottery and it depends more on luck if the IPO is like that of most chased after companies like – Religare, BGR Energy, Edelweiss, Mundra Port and so on.

Last year, DLF raised $ 2 billion from the market and it was biggest ever IPO for Indian stock market. Just three days in 2008 and ADAG went a step ahead to announce the biggest ever IPO in history of Indian stock market. Reliance Power is all set to raise $ 3 billion from the market and this IPO has created lot of interest among the investor because unlike other IPOs, this IPO has a prefix ‘Reliance’ added to it. Last year all the companies ADAG (Anil Dhirubhai Ambani Group) outperformed sensex and needless to say when it comes to return, Reliance is the leader. There is no denying the fact that issue is going to be oversubscribed and it will give a smart return to the investors. The issue also gives an option to small investors of making staggered payment and pay only 25% of the issue price at the time of application. So, this means that if a small investor is applying in the range of one lakh, he needs to pay only 25K at the time of application. This further makes it easy for the IPO to create more anxiety among the investors and makes them more worried about getting the allotment. .I personally feel that there are fair chances of getting the allotment as the issue size is a mammoth 12K crore. As it has happened last year, in the case of DLF($ 2 Billion) and ICICI Bank($ 2.5 Billion in domestic market) follow on offer, both these issues which were smaller in size than Reliance IPO were subscribed only 0.96 and 1.03 times respectively in retail section, so retail investor can expect to get the allotment. Just like Reliance Power, in the case of DLF and ICICI bank too, the retail investors had an option of making staggered payment. Taking the size and staggered payment option into consideration, I expect that allotment should not be a cause of concern for retail investors. But since this is an issue floated by the most sought after shares on the stock exchange and a business house which is known for smart yield to shareholders, the issue can be subscribed to a maximum of 4-5 times in retail section. All said and done, Indian investors and share market is highly unpredictable, so the results would be out only after the issue closes on 18^th Jan.

Another good issue which is coming at the same time (opening on 11 Jan & closing on 16 Jan) is Future Capital, Kishore Biyani group. Infact, I am more bullish on Future Capital than Reliance Power because everybody is running after Reliance Power and that is why Future Capital is not getting the deserved attention. Furthermore, Reliance Power IPO will wipe out good deal of liquidity from the market therefore, going for the Future Capital is not at all a bad deal. No doubt that the issue will be oversubscribed good number of times and there is enough potential if one is looking at long term investment. This is another good opportunity to earn good return on investment and I expect the IPO to get listed at a premium of 100%. There is lot of depth in financial sector and this sector is opening up in India due to growing economy and huge investment and insatiable appetite of consumers. The mad rush for grabbing the shares of future capital is clear from the fact that when news of Fututre Capital IPO was made public, it was quoted at a premium of 300 Rs and just 5 days after that, grey market is quoting a premium of 100% on it.

Both these IPOs are a golden opportunity for the small investors to start the year with a whopping return and retail investors should apply for both these IPOs in the range of one lakh. Both of them are among the favorites for investor, which is further substantiated by the fact that premium for the shares are soaring in grey market day after day. Even economic times which keeps away from unofficial news, quoted a premium of 9000 on every application for Reliance Power IPO in grey market. In the worst case scenario, if an investor applies for these IPO, he may not get the allotment for Future Capital (considering the size) but getting an allotment of one lot (15 shares) in Reliance Power is certain. So, applying for the IPOs is a good trade off and one should apply for both the shares.

Disclaimer: The author has no personal interest in Reliance Power or Future Capital.