IPO : Initial Public Offer

What's a public issue?

Most companies are usually started privately by their promoter(s). However, the promoters’ capital may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

One of the forms of public issue is IPO i.e., Initial Public Offer.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s securities. The sale of securities can be either through book building or through normal public issue.

Diff b/w book building and normal public issue :

• In normal public issue, the company and Lead Merchant Banker fix a price (called fixed price).All investors should buy the shares at this price only.
• In book building issue the company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to market forces to determine the final price.
• How book building issue works : It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date. Thus this method is an efficient way of price discovery of an IPO.

Few terminologies involved :

1. Face value : it is the original cost of the stock shown on the certificate issued by the company. Its usually 2, 5 or 10.Rs.

2. Floor price : Floor price is the minimum price at which bids can be made.

3. Price band : In book building issue, the issuer fixes a price band b/w which investors can bid.

4. Cut-off price : This is the effective price at which stocks are finally issued after effectively finding the price by book building method of issue. Its also called Issue price.

5. Lock in : Indicates a freeze on the sale of shares for a certain period of time.Done to ensure that promoters continue to hold some percentage share of the company even after the public issue.

Other features of an IPO :

• The Book in a book building process should remain open for a minimum of 3 days.
• An investor should know in about 15 days time from the closure of issue, whether shares are allotted to him or not.
• If not allotted, he should recieve the refund in the same duration of time.
• It would take around 3 weeks after the closure of the book built issue for the stock to be listed in the exchange.

Lets take an example of an IPO and see how it works : RELIANCE POWER

• Largest IPO in India.
• Market capitalisation of over Rs.94000 crores ( current price * no. of shares)
• Issue price of Rs.450 for retail investors.
• Unfortunately listed at a discount of Rs.20 i.e., Rs.430. (happened coz investors' sentiments changed that the IPO was over valued)
• To compensate for losses, board has agreed upon bonus issue of 3:5 (for every 5 shares held, 3 bonus shares recieved).
• Therefore bringing down the value per share to Rs.269.

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History of BSE

History of BSE :

Bombay Stock Exchange is one of the oldest stock exchanges in the world with a history of around 133 years ( where as London Stock Exchange being the oldest with a history of over 300 years ). BSE is also the biggest stock exchange in the world in terms of number of companies listed with around 4,800 listed as of August 2007. Its market capitalisation is over 1.6 trillion USD. It is also the first exchange in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956.

BSE was established in 1875. The place where BSE is located is aptly called as Dalal street (similar to wall street) and is located in central Mumbai. Although now all the transactions are electronic, it wasn't like this always. BSE is traced back to those days where a group of brokers used to trade under the shade of banyan trees. the number of brokers increased, they had to shift from place to place, and wherever they went, through sheer habit, they overflowed in to the streets. At last, in 1874, found a permanent place, and one that they could, quite literally, call their own.

Although they had a permanent place now, they still followed the old system of OUTCRY method of trading.Here in this system the entire floor was divided into groups of different stocks where brokers used to shout out their bids. There was absolute chaos in this system. In the adjacent picture you can see the number of brokers that are being fit into this small hall. All this changed in 1995, when OUTCRY system was replaced by totally automated trading called as BSE Online trading (BOLT). This system is more efficient, faster and transparent than the previous system.

BSE SENSEX : (index)
The BSE SENSEX (also known as the BSE 30 index) is a value-weighted index composed of thirty scrips, with the base value at April 1979 = 100. The set of companies which make up the index has been changed only a few times in the last twenty years. These companies account for around one-fifth of the market capitalization of the BSE.
As i write this blog, the index is around 17.5k.

BSE now :

Important milestones:
The index crossed 1000 points in 1990.
2000,3000,4000 in1992.
5000 in 1999.
6000 in 2000.
7 - 9k in 2005.
10-14k in 2006.
15 -20k in 2007.




Thus BSE trading is not gambling (as is the misconception), but is just another business with a rich history to look into!!!

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THE BIG BULL

RAKESH JHUNJHUNWALA

'The Warren-Buffet of India'. 'The big bull'. 'One man army of Indian stock market'
These are a few terms often associated with this brilliant investor and chartered accountant from India.

He currently is a partner in his asset management firm called Rare enterprises (named after Rakesh and his wife rekha).He is the 51st richest man on earth according to Forbes magazine's 2007 rankings.

Inspite of all these he is a humble man with down to earth attitude.
He started his investing with meagre amount of Rs.5000. Now his assets are estimated at $1.1 billion. Now that's one helluva Rags-to-riches story that you often hear about.

One of his mottos is the famous "Buy right and hold tight". This often is reflected in his portfolio which has always been long term investing. He is well invested in the growth sectors like banking, infrastructure, retailing, etc...

Recently in an interview he said that "Trading is against human nature". He explains this as :
"All risk taking is associated with two human conditions, viz the greed for profits and the fear of losses. The ability to strike the right balance between fear and greed is the most vital determinant of profitable risk taking. Human nature operates on the chance of a gain rather than maximizing gains.
There is lack of focus on the magnitude of gains and losses, which is why I maintain that successful trading and investing requires you to go against the basic tenets of human nature. We are programmed to learn, and we learn to a pain. But in trading and investing, you have to learn to take a loss.
In trading, the first and the last principle is that trading is trend and price based, and not opinion based. This requires you to square an unfavorable trade regardless of your opinion. This means that if I buy a stock at Rs 100, and then the price falls to Rs 95, I take my loss and square off my trade. This is counter-intuitive to most people and This is the one common quality of all successful traders."

That's one smart investor with a keen eye on stock market and human nature in general!!

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online market tracker

For software engineers like me, I have always wished there is an excellent tool to track my favourite scrips. Unfortunately had found none. ( I know there is one from reliance money on moneycontrol, but dint like it much)
Well after a lot searching for a perfect tool, I found
BLOOMBERG

Here's the link:
http://www.bloomberg.com/

Using this tool, you can create multiple portfolios, track your favourite stocks, get various kinds of charts to analyse your market capitilisation, graphs to pulls historic data, headline stories of your stocks, gains/loss incurred,amongst many other features, and its almost realtime:refreshes/updates every 3 minutes.
The best part is its free.
The tool though requires a little effort to get used to, am sure will help you.

Reader comments are always welcome...
CK

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Biggest multibaggers on bse/nse..

BIGGEST MULTIBAGGERS IN LAST 3 YEARS !!

3 YEARS AGO,CORE PROJECT :
PRICE AT THAT TIME ---> 0.18
THEN IN 34 MONTHS : 420
RETURN --127126%
RETURN (AFTER SPLIT/BONUS)THOSE WHO HAVE INVESTED 1 LAC 3 YEARS AGO.........HE WOULD GET 229 CRORES !!

JAI CORP PRICE AT THAT TIME ---> 7
THEN IN 34 MONTHS : 1252
RETURN --24809 %
RETURN (AFTER SPLIT/BONUS)THOSE WHO HAVE INVESTED 1 LAC 3 YEARS AGO.........HE WOULD GET 50 CRORES !!

UNITECH PRICE AT THAT TIME ---> 7
THEN IN 34 MONTHS : 519
RETURN --24066 %
RETURN (AFTER SPLIT/BONUS)THOSE WHO HAVE INVESTED 1 LAC 3 YEARS AGO.........HE WOULD GET 48 CRORES !!

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