* I have received lot of queries about the last column “fall as % from lifetime high” and the fact that it is more than 100%. The fact is that many of these poor fundamental shares have gone up sharply on the day of listing or for a brief period and then have fallen sharply. The base of all issues is the issue price and because a share cannot trade at negative value it can never fall more than 99%.

This column highlights the extent of fall from the lifetime high and depicts the same as a percentage of the issue price.

For example in the case of Birla Medspa the high is Rs 30.70 which is a gain of 307% on the issue price and the share has fallen below the issue price of Rs 10 to now trade at Rs 6.78. This translates into the loss of 239.20% from the lifetime high.

Tuesday the 31st of January was a great day in the Tuesday specials. The BSESENSEX gained a staggering 330.25 points while the NSENIFTY gained 111.95 points. The markets had lost considerable ground on Monday on global weakness and this kind of recovery the very next day seems a little unusual. However it upholds the theory of Terrific Tuesday. The SENSEX in 20 trading days had gained 1,779.06 points while on the four Tuesdays it had gained 1,292.54 points. Monday we saw a fall of 370 points and on Terrific Tuesday a rise of 330 points. Very clearly even God wanted to show that Tuesday is terrific. The net gain now on 5 Tuesdays is a staggering 1,622.79 points or 93.94% of the monthly gain of 1,738.63 points. The Nifty has gained 521.75 points or 90.75% of the monthly gain of 574.95 points.

What next would be the question on everyone’s mind? There are three more occasions in the current calendar year 2012 where there would be 5 Tuesdays in a month. These are May, July and October. The theory is that in any month where there are five trading Tuesdays, that month is extremely volatile and the Tuesdays contribute significantly to the events during the month.

January has been a great month and “TERRIFIC TUESDAY” has been significant as demonstrated. Let us hope 2012 is a great year going forward and Tuesdays an investor delight.

It appears of the five days of the week that markets trade on. Tuesday seems to be a really special day. The current month of January 2011 would have 5 Tuesdays of which four have been traded. The net result is an amazing finding where 72.65% of the monthly gains were recorded on the four Tuesday’s put together. The month has seen trading for twenty days. Yet another way of looking at these numbers is 25% of the days contributed to 72.65% or 75% of the days contributed to 27.35% of the gains.

The NSENIFTY also played out similarly with 70.6% of the monthly gains coming on the 4 Tuesdays.

The month of January 2012 has been really special as suddenly it appears all the problems of the country on fundamentals; economic and political have been resolved with the change of the year. India was the worst performing market in the year 2011 losing 24.64% on the SENSEX and 24.62% on thee NIFTY. With barely a month in the present year having been completed India is the best performing market of the world having gained 11.51% on the SENSEX and 12.55% on the NIFTY. If one were to look at it in another way the recovery in absolute numbers is 1779 points against a loss of 5054 points or 35.20% on the SENSEX, and 580 points of 1510 on the NIFTY or 38.43%.

The important thing to watch is whether Tuesday the 31st of January would be like a Super Tuesday or any other day. It sure would be interesting to watch how the remaining two days of the month play out.

Clearly it’s a great way to start the new year but whether the momentum is sustainable or not is a million dollar question.

These IPO’s were listed during the January March 2011 quarter

* I have received lot of queries about the last column “fall as % from lifetime high” and the fact that it is more than 100%. The fact is that many of these poor fundamental shares have gone up sharply on the day of listing or for a brief period and then have fallen sharply. The base of all issues is the issue price and because a share cannot trade at negative value it can never fall more than 99%.

This column highlights the extent of fall from the lifetime high and depicts the same as a percentage of the issue price.

For example in the case of Birla Medspa the high is Rs 30.70 which is a gain of 307% on the issue price and the share has fallen below the issue price of Rs 10 to now trade at Rs 6.78. This translates into the loss of 239.20% from the lifetime high.

AN ANALYSIS OF THE BEST AND THE WORST OF ALL IPO’S DURING THE YEAR

The year 2011 saw a total of 39 primary issues and two FPO issues. The current evaluation includes these 41 issues and six issues which consist of 5 primary issues and I FPO which listed in the last fortnight of December 2010. The year 2011 was a watershed year in the primary market. The quality of issues which hit the market deteriorated substantially and the end of the third quarter in September saw issues which were very poor in fundamentals and grossly overpriced, hitting the market. So bad was the situation that of the 9 issues that opened in the last week of September, as many as 8 issues had fundamental grades of 2 or less indicating below average and poor fundamentals. Two issues opened and failed to get subscribed during the year under review. We also had one unique IPO Vaswani Industries which after a prolonged delay was allowed to list but only after it did a buyback of 15% of the shares allotted and then issued bonus shares to the public shareholders. All in all a year in which things happened but investors lost money.

SEBI stepped in and investigated seven such issues and issued orders against these companies and in some cases also against the merchant bankers. The orders were detailed and investigated at length the wrong doings of the companies and its promoters. One more such order is expected in the next fortnight and it is believed that another 5 to seven companies would be covered. One other thing that has been debated is having price controls on IPO’s on listing day which has been considered by SEBI and now strict price controls have been introduced where issue size of Rs 250 crs and under would have a price band of 5% while issues having a size above 250 crs would have a price band of 20%. A further safeguard against the dumping of shares which has been the exit route for pre-sold issues would be the sub 250 crs issues being traded in the “Trade to Trade” segment for the first 10 trading sessions eliminating almost all chances of manipulation. In all cases there would be a price discovery session for the first hour as happens every morning in the first 15 minutes for shares which are part of the SENSEX and NIFTY. It would be this discovery price or the IPO price which would be the basis for circuit filters.

A summary of these 47 issues shows that 10 of them closed the year with gains while 37 of them closed in the negative. The issues from the PSU stable also have not done well this year. There were 3 primary issues and 2 FPO from PSU’s in the period under review. The PSU issues have not done well either and have lost between 1/3rd and 2/3rd in value with the best of the lot being PFC which had come out with an FPO and the worst being SCI which also had an FPO. The details of all the issues are given below: -

The summary shows the sorry state of affairs of issues hitting the markets and the reason why investors are shying away from the markets. 10 issues or 21.2% of issues made money while 37 or 78.7% lost money. The worrying part is the amount of loss suffered by investors. 19 issues out of 37 or more than half the issues which were negative lost more than 50%. Yet another way of looking at the same is that 19 out of 47 or 40.4% of the issues lost more than 50%. With such losses when an investor says why one should apply there is no answer that one can offer to the investor. The entire community is responsible for the same and until and unless concerted effort is done in this direction this avenue of raising money would be closed for the community and entrepreneurs and promoters would look at different avenues to raise money.

The joke of the year is the fact that the top performer of the year is Onelife Capital Advisors Limited against whom SEBI has passed strictures in its order against 7 companies which had raised money in 2011. This company is a merchant banker and is currently a loss making entity as per results declared till March 2011. The order was also against the merchant banker of the company. The second Hero is AanjaneyaLifecare Limited which gained 111%. The stock has been extremely volatile and the performance of the company not quite known. In any case when the quality of issues have deteriorated this kind of doubt is bound to exist.

One very interesting thing that has happened during the last year is that wherever issues have been high profiled or highly talked about, the expectation of investors got raised and those companies just failed to rise to the occasion and did not deliver. Punjab and Sind Bank was very heavily subscribed and had a total oversubscription of 50.75 times. Net effect of the same was that the share made its peak on day one itself and is well below the issue price having lost 50% in value since listing on the 30th of December 2010. Let us now look at some Heroes and Zeroes of 2011.

A2Z Maintenance Services limited

This was one of the high profile issues of 2011 which listed on the 23rd of December 2010. Billionaire investor was the driving force for the company and its high profile marketing effort to raise Rs 675 crs through a fresh issue and an offer for sale of 45.56 lac shares. The issue was just about subscribed and after withdrawals the final allotment at the lower end of the price band of Rs 400 was 91.37% of the issue size. The company therefore reduced the offer for sale from the original 45.56 lac shares to 26.94 lac shares. The share lost ground on day one and was down 17.8%. This was despite the fact that the promoter of the company Mr Amit Mittal and the private equity investor RakeshJhunjhunwala bought 18.75 lac shares and 16.875 lac shares from the market respectively. The spirit of the buying of shares and the fact that with these shares being bought the public shareholding has slipped below the 25% level is self-defeating the very purpose of the offer for sale.Anyway all these events were not enough to support the share price and the same has been falling to hit a low of Rs 84.15. The share closed at Rs 87.85, a loss of Rs 312.15 or 78.04% for the year.

Acropetal Technologies Limited

The company launched its IPO in a price band of Rs 88-90 to raise Rs 170crs. The IPO was subscribed 1.28 times. The issue price was Rs 90 and the high of the share in the week of listing was Rs 150 and the close Rs 102.50. The delivery on day one of listing was 54.77% of the IPO size. After the first seven days of trading when the share made a new high of Rs 156, the downward journey began on expected lines. In the next two days it was below the IPO price of Rs 90 and the low of Rs 10.75 was touched during the course of the year. The share closed at Rs 10.92 for the year a loss of Rs 79.08 or 87.87%. This was one more issue where the investor was wiped out.

Brooks Laboratories Limited

This company had tapped the capital markets in August 2011 to raise Rs 63 crs in a price band of Rs 90-100. The issue was subscribed 1.6 times but did not receive a single subscription from QIB’s. The issue opened well on listing day and the high of the share against an issue price of Rs 100 was Rs 131.10. The share price fell sharply from there and closed at Rs 60.20. The first week of trading saw the share close at Rs 42.10. The low of the share for the year was Rs 12.50 and the close was Rs 12.80, a loss of Rs 87.20 or 87.20%. Incidentally SEBI has taken action against this company and its merchant bankers for misusing funds earmarked for the IPO. The company has paid the contractor for installing the machinery in its new plant to be set up in Gujarat even though the land is yet to be handed over to the company. This is yet another case of promoter and merchant banker ensuring that the investor is robbed of his hard earned money.

Lovable Lingerie Limited

This company listed on the 24th of March 2011. The company had tapped the capital markets in a price band of Rs 195-205 and raised Rs 93.27 crs at the top end of the price band. The issue was subscribed over 35.21 times. The issue was very well subscribed and was compared as a cheaper valuation to Page Industries, the Indian franchisee of Jockey Industries. This fact helped Lovable touch a high of Rs 636.50, a gain of Rs 431.50 or 210.48%. The share was trading at slightly more than 3 times its issue price and was in no way cheaper than the valuations of Page Industries, a company who had a turnover of over 4 times that of Lovable. The share has corrected substantially from those levels and became half in value in about three months’ time and is currently trading at Rs 310.90, which is a decent gain of Rs 105.90 or 51.66%. Compared to the stocks which have lost ground atleast to the credit of this stock is the fact that there are fundamentals to support the stock.

MB Switchgear Limited

This was a unique IPO where a company involved in manufacturing and trading of transformers tapped the capital markets with an IPO where the object was to set up a project for solar power plant, an area where they had no expertise. The company raised Rs 93 crs by offering 50 lac shares at a price of Rs 180-186. The issue was subscribed 1.57 times. The market cap of the company on a fully diluted basis was Rs 372 crs and the PE of the company a staggering 480 times. The project of 6 MW of solar power would cost Rs 100 crs for which the company had term loans of Rs 22.5 crs and was raising Rs 93 crs from the public. The market cap pre-IPO for the promoter holding of 75% was to be a staggering Rs 279 crs for a company which had a turnover of Rs 34 crs and a net profit of a mere Rs 77.48 lacs. This market cap increased to a peak level of Rs 780 crs where the valuation per MW of solar power would be Rs 130 crs when it costs a mere Rs 16 crs per MW to set up and the Government of India encourages the setting up of such plants. Anyway after the customary high of the listing week at Rs 390, the share closed at Rs 319.80. Thereafter the share began its downward journey having trapped investors and making them lose their shirt. The share made a low of Rs 60.40 and closed the year at Rs 62.30, a loss of Rs 123.70 or 66.51%. This scrip had recorded a turnover which was higher than the market leader Reliance on listing day. Not only that the stock price rose from a low of Rs 118.65 to Rs 356 in a mere 150 minutes. The price movement, the fundamentals and the subsequent fall all indicate that this was a pre-sold issue and was part of the rampant manipulation which happens in primary issues. It is widely expected that SEBI is investigating this issue and some action would be taken against this company when the next order on IPO’s does come.

Moil Limited

This was a PSU offering and the company had sold shares at a price of Rs 375. Retail investors were given the customary discount of 5%. The issue received excellent response and was oversubscribed 56.43 times. It is important to note that the issue did so well that the HNI portion was subscribed a staggering 143.30 times making the HNI cost of leveraged application between Rs 175-190 which meant that he had to sell at a price of Rs 550-565 to recover his costs and be neutral leave aside making money. The high of the share was Rs 591 but the share barely traded at that price. The share closed on day one at Rs 537 a gain of 40%, but by the end of the week was at Rs 460. The low of the year was Rs 217.35 and the close at Rs 227.75, a net loss of Rs 147.25 or 39.27%. This was a great issue, it got hyped because of excellent response from all categories particularly HNI’s and even in the retail category where after a very long time people who had subscribed for the maximum permissible limit were allotted the minimum shares and that also by lottery.

Punjab & Sind Bank Limited

This was yet another PSU offering and this was a hyped issue as the last PSU bank to go public. After this bank issue there would be no other PSU bank which had not yet become public. This issue received huge subscription response and was oversubscribed 50.75 times. The HNI category was oversubscribed 85 times and the cost for the leveraged application was Rs 34 per share. This meant that the HNI was losing money first thing in the morning and as the day progressed, the fact that the share would not be able to recover from the selling pressure caused by the leveraged HNI saw the share slipping. By the end of the day the share closed with gains of under 6% at just about Rs 127. The retail subscriber to the issue received allotment of the minimum lot of 50 shares but on lottery basis and thus the returns to the investor were quite poor.

The share price fell through the year and made a low of Rs 56.05 and closed at Rs 60.20 for the year, a loss of Rs 59.80 or 49.83%. This was yet another example of a good PSU offering getting hyped and as a result of the hype and subsequent oversubscription failing to deliver the results. Investors have lost half their money in this issue as well.

Taksheel Solutions Limited

This was an issue from Hyderabad and was for 55 lac shares in a price band of Rs 130-150. The issue received poor response from QIB’s but was very well supported by HNI’s and retail investors who subscribed the issue 4.7 times and 6.18 times respectively and helping the issue be subscribed just about 3 times. The share made a high of Rs 185 for the day but closed at Rs 55.85, a loss of 63%. This share closed at the end of the first week of listing at Rs 29.05. The low of the year was Rs 12.30 and the close was Rs 13.40. The share has lost Rs 136.60 or 91.07% and wins the “ZERO OF THE YEAR 2011 award”.This company was lead managed by a PSU bank merchant banking division and the company and the merchant banker have both been hauled up SEBI in their order in December 2011.

Summary observations

The key takeaways from primary issues are as follows: -

One hopes that with a new set of listing day conditions and virtually no possibility of earlier pre-sold issues happening in the new regime, primary markets would improve in the immediate future. The market needs a few bold companies to make interesting and profitable offerings to attract investors back to the market and change the sentiment. Let us all put our best foot forward to help revive the markets.

Wishing all a happy 63rd Republic day.

This article is with reference to MID DAY dated 24th January 2012

SEBI has announced new norms for listing day for IPO’s. These norms would certainly hit the manipulation and first day disaster in IPO’s which had become a norm these days. Very clearly post the order on seven companies in December 2011, which had tapped the capital markets these guidelines were keenly awaited.

The broad guidelines divide the companies into two categories with the cut-off point being the size of issue at Rs 250 crs. All companies would on listing day have a call auction which is similar to what happens these days between 9 am and 9.15 am for the companies which are part of the SENSEX and NIFTY. This call auction or price discovery would happen for 1 hour from 9 am to 10 am and then trading would begin as normal with the discovered price or the equilibrium price being the base for the day. First day circuit filters would be 5% for issues below Rs 250 crs and 20% for issues above Rs 250 crs. In case no equilibrium price is discovered than the IPO price would be the base. From day two the normal circuit filters would apply. In addition the really important condition that has been introduced for issues below Rs 250 crs is the fact that such issues would trade on “Trade for Trade” basis which means that every transaction would result in delivery. This would reduce the volume considerably. Readers would recall that the norm for first day trading volume would be anything between 10-20 times the IPO size on day one.

The above norms would also apply for issues which are re-listed.

The above is a brilliant step taken by SEBI and they need to be complemented for the same. The present modus operandi of people behind issues was only possible because lack of circuit filters on day one gave a free hand to people behind the price manipulation to trap investors and exit on day one. Either of two things happened on day one of listing of an IPO where either the share price rose 60-70% 0r even beyond 100% on day one or prices crashed a minimum of 65%. This has happened consistently and in either case the person/entity behind the stock was able to exit. With a price band of 5% in sub 250 crs and a trade for trade restriction for the first ten trading days this is completely blocked. Gone are the days when non-descript companies would record turnovers of multiple times Reliance turnover on day one.

I believe these steps will ensure the revival of the primary market and I would urge merchant bankers and promoters of companies to bring issues which are fairly priced and offer appreciation opportunities to risk takers. I primary issues are brought with this objective, the market would certainly see a revival and improvement in the quality of issues.

These IPO’s were listed during the January March 2011 quarter

* I have received lot of queries about the last column “fall as % from lifetime high” and the fact that it is more than 100%. The fact is that many of these poor fundamental shares have gone up sharply on the day of listing or for a brief period and then have fallen sharply. The base of all issues is the issue price and because a share cannot trade at negative value it can never fall more than 99%.

This column highlights the extent of fall from the lifetime high and depicts the same as a percentage of the issue price.

For example in the case of Birla Medspa the high is Rs 30.70 which is a gain of 307% on the issue price and the share has fallen below the issue price of Rs 10 to now trade at Rs 6.78. This translates into the loss of 239.20% from the lifetime high.

The Primary markets have been in a bad shape. There have been no issues now since the September bunch of issues which hit the market and knocked the steam out of the markets completely. Even the issues whether IPO or FPO from the Government seem to be stuck and for some reason or the other have not been hitting the market. The quality of issues had become so bad that it forced SEBI to take action and act against seven companies, promoters and its merchant bankers. Action against this group of people clearly reflects on the quality of issues, and the extent of deterioration that has happened in the issues hitting the market.

Goodwill Hospital and Research Centre Limited launched its issue on the 30th of December and the issue was open for a record seven working days creating a record for itself. The issue was scheduled to close on Monday the 9th of January. There is no doubt that market conditions were certainly not conducive to an IPO opening and the fact that the SEBI order on IPO’s came a day earlier than the issue was to open certainly did not help matters. The only reason one can attribute to the issue being opened at the time it did was to avoid submitting fresh audited accounts which need to be no more than six months old when any issue opens. In the case of Goodwill audited accounts upto 30th June formed part of the RHP and therefore the issue had to compulsorily open by the 30th of December.

Well the issue opened and at the end of six trading days the total subscription received was a mere 22,015 shares against the issue size of 35,42,857 shares. The subscription was less than 1% and stood at 0.62%. In the last two decades that I have been associated with the stock market, I do not remember any company which has fared so poorly. Even issues which have not been subscribed have done significantly better than what we saw with this issue.

Looking at it in hindsight one wonders whether the decision to go ahead was correct or not. Clearly it backfired and made no sense. The company and the promoters are big losers post this debacle. The group had an ambition post this issue to tap the markets for its Aviation and NBFC company issues. Very clearly post this performance this would be extremely difficult. Secondly the stigma of having done so badly would always be at the back of the mind of any investor whenever the issue makes a comeback. Thirdly the document would have to be refilled which means that the company would have a waiting period of a minimum six months before it can tap the primary market again. This is because a fresh document would have to be prepared and submitted and would have audited accounts for a later date.

In terms of expenditure there has been a colossal wastage with all the stationery, advertising expenses just going down the drain. The failure of the issue would also be a big setback for the merchant banker as this issue would be added to his track record.

In a bad primary market which has not seen any issues for over three months, the opening and the complete disaster of such an issue is a major setback for the markets. It may take quite some time to recover from this.

SEBI Chief U.K.Sinha has said over the weekend that investigation in IPO’s is continuing and another order should be coming in due course of time. One hopes that the first order and the one to follow act as a strong deterrent for market intermediaries and promoters and the present crop and modus operandi of these people in IPO’s just stops. Until and unless this system is stopped, the present state of the primary market is unlikely to improve.

Leaving aside the negatives let us now look at the brighter side of things. With equity issues having simply dried up people are now looking at debt issues. We have had very successful Tax free bond issues from NHAI which issued bonds for a cumulative value of Rs 10,000 crs and the issue received excellent response. The final figures would be known in a day or two but it is believed that the issue raised somewhere in the vicinity of Rs 30,000 crs with the QIB portion subscribed about six times. The retail portion was under subscribed with the segment having reservation for 3,000 crs.

The second tax free bond issue was from PFC (Power Finance Corporation) which was for a size of a little over Rs 4,000 crs. Here again the issue for QIB’s and HNI’s was oversubscribed on day one and the retail portion also subscribed by the time the issue closed. These bonds are likely to list at a premium as the interest rates seem to be softening marginally and certainly seem to have peaked out currently.

The tax free bond issues are not over as yet and two more companies are likely to open their issues in the coming fortnight but before the end of January. IRFC (Indian Railway Finance Corporation) will launch its issue for Rs 6,300 crs while HUDCO would do so for a shade under Rs 5,000 crs.

There are other bond issues presently open which have a tax break under section 80CCF. A number of infrastructure companies are offering these bonds. Some of the issues currently open include names like SREI, L&T Finance, IDFC and REC. These bonds offer a tax rebate on a maximum of Rs 20,000 and have a minimum lock-in of 5 years. Safety of bond holders or subscribers is ensured with a buyback option after five or seven years.

These IPO’s were listed during the July September 2011 quarter

* I have received lot of queries about the last column “fall as % from lifetime high” and the fact that it is more than 100%. The fact is that many of these poor fundamental shares have gone up sharply on the day of listing or for a brief period and then have fallen sharply. The base of all issues is the issue price and because a share cannot trade at negative value it can never fall more than 99%.

This column highlights the extent of fall from the lifetime high and depicts the same as a percentage of the issue price.

For example in the case of Birla Medspa the high is Rs 30.70 which is a gain of 307% on the issue price and the share has fallen below the issue price of Rs 10 to now trade at Rs 6.78. This translates into the loss of 239.20% from the lifetime high.