Posts Tagged ‘share price’

Did IPO Grading Fail to Catch the Fancy of Investors??

ipo grade system

The grading system of initial public offers (IPO) is in need of an upgrade, say market participants.

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Two years after it was first introduced by market regulator SEBI, the system has failed to catch the fancy of investors as share price trends of newly listed companies have shown little or no correlation to the grading given by rating agencies.

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“IPOs with grading 4 have shown returns that are much lower than IPOs with grades 1 and 2.
So, this is raising the question whether it is time to look at amendments to the existing structure or maybe SEBI can think of completely scrapping the system,” said Jagannadham T, equity head of SMC Capitals.

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However, one can’t deny the importance of the IPO grading system not only is it beneficial for retail investors who don’t have the time or skills to go through an entire prospectus but it also acts as a deterrent for fly by night promoters who wish to access the primary market solely for their gains.

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Not only financials of a company is looked at but also people at the business head level are contacted to see what the company is up to.

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As per few experts, IPO grading doesn’t have anything to do with the price post listing. A lot of things apart from fundamentals drive the stock.

The reservation of comment on pricing is a sore point, but even more, is the grading of a SEBI barred company like Austral Coke at Grade 2 by CARE above Orbit Corporation at 1 by the same rating agency.

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And this makes one wonder if a thorough due diligence is done by all rating agencies that’s ground enough for a review.

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IFCI Sells over 27 lakh DVR shares of Tata Motors :)

DVr shares

IFCI has sold more than 27 lakh Differential Voting Right (DVR) shares of Tata Motors in the last two trading sessions through the bulk deal route.

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At the time of the issue of these shares in November last year, IFCI was the sub-underwriter to Tata Motors’ DVR issue, along with JM Financial.

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Of the 6.4 crore DVR shares issued by Tata Motors, IFCI held 81.96 lakh shares (12.77 per cent) as on June 30.

After the sale, IFCI’s stake has fallen to 8.4 per cent.

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Marketmen said IFCI is likely to have sold the DVRs to take advantage of the rise in the share prices.

IFCI had bought the shares at Rs 305 a piece in November last year.

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The Tata Motors DVR stock closed up 4.8 per cent at Rs 368.95 on the BSE.

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“IFCI purchased these shares at a lower price; this is quite a decent exit proposition. They have made fair bit of profit from this sale,” said Mr Jagannadham Thunuguntla, Head of Equities at SMC Capitals.

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Another reason for IFCI’s sale of the DVR shares in the last two trading sessions could be that they wanted to sell before the release of Tata Motors’ consolidated first quarter results on Monday, Mr Thunuguntla said.

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Company has raked in Rs 98 crore through market sales. 🙂

Tata Motors made a consolidated net loss of Rs 329 crore for the quarter ended June 30.

Tata Motors was the first company to issue shares with DVRs in India in November 2008 when it issued 6.4 crore DVR shares as part of its Rs 4,145-crore rights issue to repay the loan taken for its acquisition of Jaguar-Land Rover.

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Companies Go Slow on Share Buy-Backs.

Companies go slow on share buy-backs

Companies go slow on share buy-backs

In a tight money market, companies that have moved to buy back their shares are going slow on these efforts either because they do not have the money or are saving it for a better use, according to analysts and executives at some of the firms.

Currently, 22 companies have ongoing offers to buy back their own shares and, according to SMC Capitals Ltd, the merchant banking arm of New Delhi-based financial services house SMC Global Securities Ltd, they have spent less than 25% of the aggregate Rs 4,559.47 crore they would have to spend if they bought back all the shares they set out to at the maximum buy-back price.

To be sure, buy-back offers are typically open for several months and many of the 22 companies still have time to repurchase their shares.

Companies buy back shares in an effort to boost investor sentiment and prop up the share price, and increase the return on equity (money for the buy-back usually comes from reserves which is part of the shareholders’ funds or equity) and earnings per share (the shares bought back are destroyed, leaving fewer shares among which the earnings have to be shared).

No companies launched buy-back programmes in 2007, when the equity markets were on a roll. Several companies, however, announced such programmes as the markets started melting last year.

India’s benchmark equity index, Sensex, has lost nearly 50% of its value since January 2008, in the wake of the global credit crunch and an economic slowdown.

Delhi-based real estate firm DLF Ltd, which had announced one of the biggest buy-back plans last year at a total maximum cost of Rs1,100 crore, has thus far repurchased shares worth only Rs 51.3 crore, according to SMC. The offer closes on 9 July.

“The money we have deployed in the buy-back is a reflection of the general market conditions and the liquidity crisis worldwide,” said Saurabh Chawla, executive director, finance, DLF.

Similarly, Reliance Infrastructure Ltd, owned by the Reliance Anil Dhirubhai Ambani Group (R-Adag), has bought back shares worth Rs806 crore in an offer capped at Rs2,000 crore, according to SMC data.

“At a time when cash is king, many companies may not be as committed to their buy-backs as they would have been otherwise,” said Jagannadham Thunuguntla, head of equity at SMC Capitals.

Jagannadham Thunuguntla, head of equity at SMC Capitals

Usually, a firm specifies a maximum price for the buy-back and a maximum amount it will utilize for the buy-back.

But it doesn’t necessarily use this amount, and the buy-back happens at the prevailing market price.

“If the maximum buy-back price is Rs600, but the current market price is only Rs 300, the firm will naturally buy back at Rs 300,” said Thunuguntla of SMC Capitals.

A buy-back gives investors the option of liquidating their position in a market that doesn’t have too many buyers.
More read on SMC Capitals : http://www.smccapitals.com/index.htm