i Develop Stocks Advisory

Soul searching again... 5220 which once broken created furor and lot of positions were sold off in panic. One of the reasons for the unwinding was the FM’s liberal request to bankers to extend credit facility to broking community. Bankers asked for margin from brokers who politely said no; we can’t. You may sell stocks and banks obliged in the second half. But those who had idea of this fact had used this again to go shorting Nifty though we can’t reveal names here. The shorting was with force and gravity to trigger 5220 which knew with the fact that this will create automatic damage being a major stop loss of bulls. The issue of systems stands unresolved. Media raised the voice that margin issue created problem on 21st Jan which could have been dealt in a better way by regulators by transferring B1 and B2 shares to A gr as crisis management in the same way Nifty margins were increased from 5 to 37%. Even NSE should have trusted its own members and asked to even deposit shares of A gr as collateral margin which is equivalent to cash. Simply because brokers who deal with clienteles across India if can not cough up cash margins can at least transfer shares to NSE that too within 30 minutes which could have safeguarded the system because the margin requirement could have gone down from 2 bn USD to 500 mn USD and hence the fall could have arrested at 800 points instead of 2200 points. There is another burning issue which needs to be addressed by the regulator and the FINMIN by and large. The IPO which had sucked major liquidity form the capital market is by and large was responsible to the market collapse. Consider this Nov 2007 the O I was Rs 1.30 lac crs market said all right no issues. Dec again OI was Rs 1.32 lac crs market said no issues. REL Power came with IPO and its valuation was at stake. Merchant bankers decided the price of Rs 450 which was aggressive or not is a subject of dispute. Regulator has only role to clear the documents and can’t sit in the judgment of merchant bankers. In Jan finally the issue came and oversubscribed by 80 times and ADAG gr had approach the regulator to give refunds out of the order. Now the boiling issue is whether this will keep on happening every time a big IPO is lined up….? Whether few more IPO will be withdrawn from the market like WOCKHARDT because of the weak market conditions…? Will small investors burn the fingers of below par listing of IPO’s…? All the 3 issues are key to success of transferring India’s savings into investments in capital market which is still struggling to cross 1.5% of the total population. If we need to race towards super power status like US markets we need to address this issue which if not addressed then could imply failure of our capital markets on a larger scale and we will be governed by hot FII money. The FII dominance can be reduced by bringing our own savings to capital markets and for that only U S model can save us from disgrace and bring our own savings to capital markets. U S market has a rule that all stocks of IPO should be managed for 1 year by 2 merchant bankers post IPO with a guaranteed level of 10% downside only for 12 months. Their market making will resolve 2 issues one that they will give the actual required valuation where they themselves can support the stock price and 2 retail investor who can be assured of maximum loss of 10% can divert his hard earned savings to capital market. This will go a very very long way for improving the systemic issue of capital markets and make it real world class. Savings will come to market; pension funds too can enter easily in the capital market if the downside is defined because the risk taking ability should be restricted. Merchant bankers for sure will be more accountable when they know the damage will happen to them if they give very aggressive pricing. Everybody has potential you just have to discover it.