February 11, 2008, was a historic day for the Indian inventory markets. The shares of Reliance Energy, after the corporate collected a report sum in its mega IPO (₹11,563 crore), obtained listed with a lot fanfare.
The IPO of Reliance Energy had generated bids value over ₹7 lakh crore and the difficulty obtained subscribed by greater than 72 occasions.
Anil Ambani-controlled RPower had mounted the difficulty value at ₹450 a share for non-retail traders and ₹430 for retail traders. However those that had been overjoyed on receiving IPO allotments had been in for a impolite shock, because the inventory had a horrible begin, due to hostile international markets, which was just the start of the meltdown following the US housing disaster.
RPower, which surged 19 per cent to ₹538 at open, noticed the expectation of a dream debut vanishing into skinny air inside 4 minutes of itemizing. Shares nosedived to ₹355 and closed at ₹372.50. In simply sooner or later, billions of rupees of traders’ wealth had been worn out. Sadly, the preliminary four-minute excessive was the one interval the inventory would handle to rule above the IPO value until date.
As a face-saving measure, the corporate introduced free bonus shares within the ratio of three:5 (three shares for each 5 shares held within the firm) to all classes of shareholders, besides the promoter group, shortly after itemizing. This lowered the price of RPower shares to ₹269 for retail traders and to ₹281 for different allottees.
The itemizing and subsequent buying and selling patterns in RPower have damaged a number of myths within the inventory market, which might provide helpful classes to the investor fraternity.
Model title sufficient?
Ask any old-time investor, and he’ll say that if you wish to guess on one particular person on Dalal Road it might be the (late) Dhirubhai Ambani, founding father of your complete Reliance group empire. He was fondly known as the architect of India’s capital market. Model Ambani is synonymous with wealth creation and taking good care of shareholders’ curiosity. However the RPower itemizing has taught the lesson that the enterprise is extra essential than the model title.
It is extremely tough to outline phrases akin to short-term, medium-term and long-term. In India although, in a bull cycle, holding a inventory even for a yr is taken into account as long-term and through a bear section, something over three years is taken into account to be long-term. Nonetheless, for outdated timers, long-term nonetheless means a 10-year holding interval.
The returns from RPower have punctured the parable that inventory market traders who handle to carry on patiently to their investments by means of downturns can earn huge rewards over the long run.
Is bull market everlasting?
In three years, the inventory of RPower misplaced 21.1 per cent and in 5 years, the loss mounted to 47.6 per cent. And for many who are courageous sufficient to be holding the inventory until date, the inventory has misplaced 79 per cent!
Regardless of a number of classes from historical past, inventory traders typically find yourself believing in secular bull markets. Irrational exuberance was at its peak in 2007-08. Buyers didn’t recognise the bear lure as straightforward cash from the developed economies, primarily the US, began chasing property and listed shares the world over. Because of this, fundamentals took a backseat and greed emerged the winner. The collapse of Lehman Brothers introduced everybody again to floor zero. The essential lesson is keep away from herd mentality and control valuations.
In each bull market, theme-based traders like to color a rosy image of some dawn sector. Energy era was thought-about a dawn sector in late 2000s, as India was embarking on main energy sector reforms and impressive privatisation. As the federal government was speaking of main initiatives on coal, thermal and nuclear energy tasks, traders thought energy shares would flip multi-baggers. The bubble popped when the sector was stricken by corruption allegations and confronted extreme pricing strain. It’s not really easy to identify a dawn sector!
Some traders have a tendency to purchase crushed down shares on hopes of cost-averaging to convey down their acquisition value. There are traders who purchase shares that are at their 52-week lows as worth picks, anticipating to exit on the yearly excessive. The essential lesson from RPower for them is — ‘Don’t catch a falling knife’.