The equity capital as on March 2007 was Rs 200 crs as on Sept 2007 was Rs 2000 crs and post IPO will be Rs 2260 crs.
What is interesting to note that the corporate action will require 26 days whereas the funds garnered will vest with banks on behalf of the co for at least 21 days which is entitled for short term interest. Assuming that the short term interest rate is 7% co will get close to 3000 crs only as interest which is Rs 13 per share.
The premium in the gray market collapsed from Rs 450 pre IPO to Rs 290 yesterday which is giving an indication of listing price of Rs 825 to 850 band. Those who have heavily traded in the gray market will have to report all the trades on the first day of listing. The listing day can’t generally favour the traders in gray market and therefore even at Rs 825 levels they will lose money.
Alternatively the costing of IPO too comes very close to Rs 800 and hence most of the investors in the IPO will be looking for a desperate exit on listing day between Rs 825 to Rs 850 which given a return of 3 to 5%.
Though this is the flip side, there is also a big positive.
Apart from interest factor, the refund of close to 9 lac crores will be redeployed in the market either for buying RELP shares or any other value shares which is available to FII due recent crash of over 10% in the Sensex.
Even if it is assumed that fresh new money has entered for this issue, this simply represents the fresh allocation for
We had seen this happening in ONGC the then biggest issue then in DLF where nobody even believed that it would touch Rs 600 and the stock price went on to touch Rs 1200 due to the hot money allocated by FII.
In all fairness the correction is a welcome sign and if market falls by another 500 points it could more ideals but it seems it never happens in market.
To time the market is the most unpredictable job and when market falls like this all wait for further fall which never happens. The liquidity is fairly large and as seen the RELP refund could add 150 to 180 bn USD liquidity to the capital market which is sufficient to take SENSEX past 30K. This will mitigate partially the losses of sub prime written down overseas.
The study of past three years suggests, FII could enter markets at the bottoms because of the mental block and human psychology. They tried at 8900 but failed, they tried at 12300 again failed they tried at 14000 again failed the only lesson they learn after 15000 from where they took it t0 18000 in shortest possible time.
This time too if they do not come of caves and take a bold call on stocks of their choice, we are sure they will come back at 22000 to invest heavily in this very market.
Facts and figures in derivatives suggest that nothing serious has happened for investors and barring profit booking in bits and pieces, they exit has been made from India. It is also unlikely for next couple of years and hence this correction is similar to all previous corrections ( V shaped ) which require not to boil your blood in haste.
If you have digested the pain of 2000 odd points, be prepared for another 500 points at the most and then see the BRIGHT sun shine coming back to fore. This is the best time smart investors who take huge call on select stocks should come out in open without waiting actions from FII and start calling their shots.
This is the first severe correction of 2008. There could be many more which suggest investors should go overboard to the extent of only 50% in normal markets and 100% in times like this.
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