stolen from Viveks



Typically IPO are considered safe bet for retail investors.
1) You always apply at cut-off (which means you do not have to spend a lot of time doing research about what the allotment price is)
2) There is a 35% reservations (yes Indians love reservations)…
3) You can expect some listing gains.

But recently I have started questioning my investments
1) A good issue gets oversubscribed 30-40 times .. and very good ones even more.
2) Your capital gets blocked for 20 days (almost a 550/- interest lost on a 1L application)
3) If by mistake you apply in a bad IPO, you will not only get 100% allotment, but it will also list below the issue price.
4) If by stroke of luck you get an allotment, it would be of 6-7K worth… Now this is so small a piece of pie for me to track.. so either I need to shell out an additional 20-25k to make it sizable or get rid of the allotment on the very first day 🙁 Hence defeating the very purpose of application.

For the past 1 year, i used to keep 1L aside for IPO applications. But since I got 1L straight refund for my last couple consecutive applications I am thinking of revisiting this strategy. From now on I won’t be investing in IPOs unless it is a mega issue.
What has been your experience with IPO?



on June 18th ICICI Bank aims to raise at least Rs 10,000 crore from investors, while DLF is raising between Rs 8,750 cr.
Very few countries have the financial strength to allow for a mega offer, and India is currently going to witness 2 mega offers back to back. So it is a very good news.

Looking at the previous issue, I think ICICI would price its issue at around 900/- (the stock was traded at 900/- today) which makes it very competitive. However it should be giving about a 5% discount (855/-) and/or an option to retail investors of partial upfront payment of application money.
Since it is a FPO (further public offer) investors should not expect much listing gains, but these 2 offers combined would make some investing sense.

There is no concept of annualized average returns in stock markets… its all a function of your alpha and beta.


ICICI Bank issue will be open from 19-22 June.
The Price band is an aggressive 885-950/- (plus there is a 50/- discount for retail) making it (835 – 900/-). Retail investors have to pay only 250/- per share at the time of their application 🙂
There is also an green shoe offer to protect your investments.

15th July: those who have applied to partially paid ICICI shares need to pay an additional 250/- bu 26th July.


Air Deccan

“The market can stay irrational longer than you can stay solvent.”
– John Maynard Keynes

A rational Market lives on predictive pricing, the future incomes are discounted the moment it becomes public news. This makes it a heaven for the investors and a nightmare for the traders (as the fluctuations would be rational). However to the joy of most traders Indian Stock Market is anything but Rational.

Today AirDeccan is trading at 131.7 and this is inspite of the fact that Vijay Mallaya has announced an open offer that between 25th July to 13th Aug he shall buy 20% of Airdeccan Stocks at 155/- per share.
So for a rational investor this is 155-132 = 23/- per share or 17.5% returns in 6 weeks or 150% annualized assured returns.

Hence I would recommend all the rational investors to go bullish on this stock.



DLF is going for IPO at a price band of 500-550/-

Reasons why not to invest.
1) It is a mega issue… I will be surprised if it gets fully subscribed (in all categories) leave alone over subscribed.
2) with a EPS of Rs 12.80 it will have a PE of 47.7x… too high for an industry that is facing recession.
3) With high interest rates and construction more than the requirements (yes a lot of the developed property is now waiting for occupants) i do not see a short term bright future for any company associated with real estate.
4) With Delhi and NCR almost fully saturated, DLF plans to move outside to other regions… a risk which can backfire.

My strategy… wait for the listing… if the stock lists at 450/- buy some and if it goes to less than 400 go bullish on it.

Investing IPO

Vishal Retail Ltd

This company is going for an IPO at a price band of 230 – 270 in a lot size of 25 share. I strongly recommend the readers to apply to this IPO.
1) Retail sector is in a boom period. It is going to be the next best thing.
2) Vishal targets value retailing… which unlike other listed retail companies makes it unique, more competitive and better positioned to face the MNC onslaught.
3) The company is very aggressive. It has 50 stores across 18 states and has plans for 80 more stores to make it a truly pan-india brand. It started as a ready-made garment retailer, but has diversified itself to a full fledged retail network.
4) I never recommend investing in a company whose products you would not like to buy. And for the bargain hunters Vishal is just the right place.

1) With a EPS of 20, the share should be alloted at an PE of about 13.3 which makes it 3 times more attractive to other retail chains like Trent, Pantaloom and shopper’s stop, which trade at a PE of 40+.
2) The sales of the company is 1130.7 (and doubling each year) which makes it bigger than Trent and Shopper’s Stop.

I feel a combination of aggressiveness and a boom would make a good investment opportunity.


Every Problem is an opportunity

American Express (estb. in 1850), as the name suggests, was a small time express freight carrier. It also had a small financial arm which carried the Money Order and competed with the US Posts.

Sometime between 1888 and 1890, J.C. Fargo took a trip to Europe and returned frustrated and infuriated. Despite the fact that he was president of American Express and that he carried with him traditional letters of credit, he found it difficult to obtain cash anywhere except in major cities. Mr. Fargo went to Marcellus Flemming Berry and asked him to create a better solution than the traditional letter of credit. Mr. Berry created the American Express Travelers Cheque which was launched in 1891 in denominations of $10, $20, $50, and $100. (source)

After this there was no turning back. American Express soon grow into a bank and is now one of the leading financial giants. It is a fortune 74th Company and its stock is one of the 30 stocks that is used to compute Dow Jones Industrial Average. Hence I would say, every problem is a multi million dollar business opportunity.

For those of you who are wondering what is so great about this financial instrument, here is the explanation:
The efficiency and the competitive advantage of the Traveler’s Cheques come from better inventory management. In order to sell foreign currency, the forex merchant has to hold USD. Now this is disadvantageous for him on 2 counts.
1) His working capital gets blocked in a piece of paper.
2) He is exposing himself to the currency fluctuations.
Which means that suppose he is keeping 1000 USD in his shop, he is effectively blocking 41,000/- INR and say if USD dollar is devaluing he is bleeding money on that too.

However, Traveler’s Cheques is just piece of paper. Since he pays for it only at the time of sale at the exchange rate he is offering to his customer, the risks gets greatly reduced. This also enables him to offer better exchange rate to his customers making him happier 🙂

For the issuing bank, traveler’s cheques is like any other Demand Draft. The payment is made upfront, but the actual purchase happens much later. So the bank can raise some working capital at little/no cost. The bank gains through brokerage (difference between buying and selling), a tiny percent of them which might never be encashed, and through the extra fees they charge when the customer reports them to be missing. So even though it is offering a service to its customer, it never has to explicitly charge for it.

For the traveler, it is a signature protected piece of document. So if it gets stolen during travel (traveler’s nightmare) he can still report it and recover the funds. Plus as earlier explained, he also get a marginally better exchange rate.


Airtel Broadband

Airtel Broadband services is one of the few Indian companies which not only say that customer is the king, but also practices it.
Let me list my interaction:
1) I send them a mail in the afternoon inquiring about the new connection. In a few hour their agent called me to fix the appointment, by the evening one guy was at my doorstep with forms and formalities. By next day evening my phone and Broadband was up and running (i think even my payment cheque was not even cashed by that time). All this hassle free service without me having to waste even a second.

2) I value my time, and would not like to run around the roads of Bangalore. Hence airtel agent drops my bills and picks up the cheque from my place, at no extra cost. So in the past 1 year, I never had to visit their office.

3) Then a couple of days before my phone was not working. I called 4112345, within 30 seconds the phone was picked up by a HUMAN. My complaint was promptly taken and the service engineer was there at my doorsteps within 70 minutes (inspite of the rains). Airtel has has a guarantee system. If the problem is not rectified within 3 hours, they refund 100/-.

People say that Airtel costs me more than BSNL, but if they give such kind of service i don’t care.

So guys do you know of any other Indian enterprise which thinks customer is the king?


Mind Your own Business

Pr3rna recently asked me what I thought about Manmohan Singh’s recent appeal about salaries drawn by CEO.

Let me tell u a hypothetical story:
I own a modest shop which can barely meet its expenses. By stroke of luck, I hire a bright young Manager for a a share in the profits. Now this genius in 5 years converted my small shop not only profitable, but also helped my buy 9 more shops. If the profits increase by 50 folds, what should I do…..
Reward him
or reduce his profit share?

My point is the salary which an employee earns is a concern of employee, the share holders and the board only. As long as there is transparency about the remuneration and the taxes are paid in time, its no business of the government to intervene.

In case of a professional management (where the top executives are not related to the promoters) u guys tell me… would u prefer the lion’s share of the revenues go to the rich and pompous promoters who just sat back and did nothing… or to the workers and management who give their sweat for the company?

In case of promoters doubling up as CEO… I ask you a simple question is that guy better than the CEO of a public sector company which earns 10k USD pa? if he is not worth the compensation he draws… short the stocks and invest in a company which does not squanders your money… market is the best regulator for financial prudence.

Lastly, if you pay peanuts, you will only get monkeys…


Why I hate caste segregation

First they came for the Communists,
and I didn’t speak up,
because I wasn’t a Communist.

Then they came for the sick, the so-called incurables,
and I didn’t speak up,
because I wasn’t mentally ill.

Then they came for the Jews,
and I didn’t speak up,
because I wasn’t a Jew.

Then they came for me,
and by that time there was no one left
to speak up for me.
– Martin Niemöller