Reliance Power IPO: What went wrong?: Finance Trading Times

Reliance Power IPO: What went wrong?

I am lucky, just because both my predictions about Reliance Power IPO Review and Reliance Power IPO Listing are approximately true! Again,I’m just lucky.

Now I’m not here to strut around claiming that the dangers of stock markets and IPO investments that I was worried about, have come out to be true, but after every exam, every failure, there are lessons to be learnt. Every question that I missed or answered incorrectly in the exam, I remember it for life. I was lucky, so I’m repeating this phrase again and again. Markets work randomly & one has to be lucky to make money in the markets!

So what went wrong with Reliance Power IPO? It was supposed to be the awaited listing. It was the IPO that caused millions of demat accounts to be opened. It was the IPO which was trading at double the offer price in the grey market trading. Still on the listing date it went for a tailspin.

The reason was markets and the behaviour of market participants. Everything was good. Despite the cancellation of Wockhardt and Emaar MGF IPO, the markets were waiting for Reliance Power IPO to be listed. The hope was that the Reliance power IPO listing will give a new positive direction to the markets. But it failed miserably.

The reason can be partly contributed to the HNI behaviour – The High net Worth individuals. These are people who apply with crores of Rs., generally on loan. Hence, they were going with the expectations that this IPO will have a fantastic listing. They took up huge loans and applied for IPO in maximum possible quantity in the NI quota. They were paying heavy interest each day. Hence, pressure mounted due to the accumulated interest. They saw that the listing price of the IPO was hovering in the range of 400-430, with no signs in sight that can give a kick start to this share price of Reliance Power. Hence, to cut their losses short, they had to sell the shares.

As selling pressure mounted, the price went down further.. Touched a bottom of 355 or so, and finally closed at 370 or so.
The retail investors also panicked – especially those who had taken a loan for this IPO. Nothing in sight in the near term, they were forced to sell. Same was the case with FII’s and other institutional investors. All invest and trade with limited capital, usually on leverage. All were forced to book losses.

What should the retail investors do?
I usually do not give any trading advice. But if you have the capacity, you can hold on. Forget about it for 3-4 years. Though my valuations tell me that even for 3-5 year horizon, this stock is not worth the initial grey market trading premiums. However, at this level, one may think of holding onto it. If you have the capacity, hold on and forget this stock. It will give you good returns in the long run. Reliance is a big name.
Lessons to be learnt:

Again, I’ll repeat - Markets Work Randomly, there is no timing or sure shot money making machine (IPO, short term trading, long term trading, etc) All you need is LUCK, LUCK and LUCK. All the best!
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7 Comments: Post your Comments

Anonymous said...(on 11 February 2008 at 04:06 )  

I envy you Shobhit, for the tremendous amount of knowledge you have and the way you share it with us.
Kudos to you...Keep it up.

Thanks,
Siddu

Cynic said...(on 11 February 2008 at 04:33 )  

I also envy the fact that you have obviously NOT put YOUR money into this &%$#% stock.

One nose that does deserve to be reorgnanized is that of a certain AA-bhai!

Mangesh said...(on 11 February 2008 at 06:17 )  

Thanks Shobhit,
I was about to invest in IPO but after reading your blog (specially comparison between interest loss for 2 months and actual gain). I differed my mind.

You said that you are lucky this time but it is a lesson learnt for all readers about how randomness work. If market condition would have been different scenario may have been different. This is how perfect example of random behaviour of market.

regard,

Mangesh

Andy K said...(on 11 February 2008 at 07:26 )  

Hi Shobhit
Guess what?... I am too lucky, after much thinking i applied only through one demat a/c that too partial payment (I had prepared to apply with 100k each through 2 demat a/cs), i got 15, and rest money i invested in 21-22 jan great fall.

Thanks for your wisdom, and your article.

Andy

Philip said...(on 11 February 2008 at 16:29 )  

Cant believe people fell for the marketing of Anil Ambani. A company with 0 watts production wanted to raised USD 2-3 billion from the market and the suckers fell for it.

I only laugh at all the people who invested in it. Udayan Mukherjee of CNBC had a good analysis of the stock yesterday. Watch it if you can.

Subhan said...(on 11 February 2008 at 19:26 )  

Now someone rightly described Reliance Power as a"0" watt company. Lol.

But Shobit, if you don't ever invest in Stocks you would be always lucky.

Or how would you describe a person who missed all the great IPO listings in last so many months?

I have my money in Stocks and had suffered some loss due to this crash, but I am still glad as the madness is over.

Neil said...(on 21 February 2008 at 22:28 )  

An article from Economic times talking abt reasons behind Reliance Power fiasco :
Why did Reliance Power lose 17% on its debut at the exchanges?
http://economictimes.indiatimes.com/articleshow/2799651.cms

Wish you all happy and fruitful trading and investing activities with safety! = = = Post a Comment

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