Got some money ??

If the buzz in the primary capital market is an indication, then all of us are in for a wonderful future. Investors across the globe have this uncanny ability to correlate the number of IPO's in the market to the economy in general with a positive +1. How i wish that were true..

This season has already seen the maximum issues in the Indian market and seem a repeat of 1995-96 era. The 1995-96 season IPO though could manage to hold most of its promises true. But i find it really amazing and uneasy, how things can suddenly
become so sunny.

Well then what does an IPO mean for you and me...More important to that, i feel is whether an IPO is meant for you and me. If i were an company and wanted to raise capital , to me the best option would be to get a Goldman Sacchs to do it for me.
Simply because, an IPO is nothing but a sale exercise and the better i sell myself, the more value i get. And its better to get a Shahrukh to sell a movie than a debutant ( Unless though iam a Hrithik Roshan and can do a google type of IPO).

And a goldman sachs will inturn 'fairly value' it by/then sell it to its Institutional buyers - their regular clients who are given the preference. Why would these people buy it from GS - Only if they find it reasonably / under priced. And GS would not
sell it to them unless it is under priced ( customer is the king !! Keep him happy.. Its on their strength that they happily take underwriting ). So in effect what we get is what they don't want and they do not want issues which are over priced.

Yet we get excited about the whole thing and we start analysing the industry prospects, the organisatonal strengths and opportunitiesthat are available to it, risks that it faces , entry and exit barriers and all such things but wisely ignore the management
team that bring the IPO to you. The IPO could be a very fancy name for the exit strategy of promoters which we dont realise.In such cases, IPO is a end rather than the beginning ..Its all about selling oneself at a profit. And the way they do it -
' Once in a Life time opportunity ' . Heaven sake, IPO's are always meant to be a one-time affair !!

The cousin of IPO seems to be an intresting species also. Called the ' Dutch Auction' , this is a method where the companyinvites bids from all and seeks price discovery ( a top to bottom approach). Usually a case of over-allotment, shares are alloted to the highest bidders though not at the price bid. It's at the lowest price of all alloted bidders. Definetly a bettermethod of price discovery , though still far from accurate.

What i found intresting here though is the interaction between psychology and finance . As an investor here, if the dealis attractive, i would say to myself - Hang on ,let me bid at a high price so that iam assured of an allotment and in any casei will get it at a lower price.. Sounds like game theory , it is !! The problem that happens is unlike game theory , you loseonly an opportunity ( in a world of endless opportunities) and hence everyone puts the bid high. The valuations thus become stretched and we burn our own fingers.. Smart companies just need a shahrukh as brand ambassador and people pay up a
premium..


Not Beware , but Be - Aware ...
A lot of people become pessimists from financing optimists...