India's biggest IPO falls flat on its face | What went wrong

Mumbai: Reliance Power listing failed to light up the stock on Monday. The country's biggest IPO fell flat on its face. Millions investing in the stock have had their hopes and dreams shattered.

Reliance Power listed at Rs 430 versus its issue price of Rs 450; it showed a disappointing and unexpected opening. Investors sold off the stock in desperation as it ran even lower to almost Rs 390 before coming back to Rs 420.

"I had never imagined that this would get listed below offer price, because of the kind of interest that we had seen, that the exuberance in the grey market could be wiped off. But it will not bring it down below the offer price — which could be Rs 450, or in the worst-case scenario, it could be Rs 430. It has touched Rs 390, though that maybe a knee-jerk reaction or desperation on the part of investors to get out of the counter. But still that was never imagined. I don’t think any fundamental analyst would have imagined that kind of price," SP Tulsian of sptulsian.com said.

In a CNBC-TV18 poll, none of the brokers polled expected Reliance Power to list below its issue price. A staggering 53 per cent expected it to list at Rs 550-600, 33 per cent between Rs 500-550. Only 7 per cent thought it would list at Rs 650-700.

Anil Ambani Group said it is disappointed over lower closing of Reliance Power stock. "It's a reflection of meltdown in global capital markets," a company spokesperson said.

As a sign of the euphoria it created earlier, SP Tulsian coomented on how many new demat accounts were opened before the issue opened.Is it a total disappointment?

Amitabh Chakraborty of Religare Securities doesn’t think so. Chakraborty feels that it is too early to declare the listing a disappointment and the current discussions around REPL price are, at best, theoretical. Cues from global markets suggested that it expected the stock to stay between Rs 430-435, for the time being.

He’s quite positive on the stock and would advise F&O investors to enter the stock at these levels.

According to CNBC-TV18’s Udayan Mukherjee, "Just work with a ballpark number of Rs 300. At Rs 300, the company would have a marketcap of something like Rs 68,000 crore — that would be 40 per cent-42 per cent of NTPC’s current marketcap. I think that is fair, the company does not have any power in the ground. NTPC has the entire capacity that Reliance Power wants to put up over eight years functioning, on ground today — not eight years forward. Give it 40 per cent of that value today. At Rs 300, assuming Rs 80 of value, you are paying almost four times book for potential five years forward. You are paying 40 per cent of a company’s value, which has already got the capacity in ground; which you want to achieve over eight years and I think that is fair enough. So for my money, Rs 300 is fair value for Reliance Power, Rs 450 is expensive and overvalued; Rs 550 is certainly pushing it."Retail Vs FII

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SP Tulsian says if the QIBs are eager to get out of the stock, then the situation could be bad. This is because the QIBs are more qualified and better informed about the fundamentals of the stock, than the retail investors. He expressed concern about the shortsightedness of the QIBs, the FIIs, since they were the ones who got the issues over-subscribed by almost 82 times.Will retail investors get out now?

Technical analyst Sudarshan Sukhani advises investors to go stock by stock. He said one should become long-term investors with a two-three year view. There are no short term revenue generating opportunities in the power sector now, he said. Investors can’t expect to make money in a month in the power sector.

But retail investors are not selling the stock, he observes.

On the other hand, SP Tulsian believes, retail investors probably are in a mood to get out of the stock. They reckon that they will have a better opportunity to do that now. He expects around 15-20 lakh investors to get out.

Amitabh Chakraborty of Religare Securities said he heard that the price has come down to Rs 410 and that it is a good entry point from the F&O point of view. According to him, the price fall is not due to FIIs and retail investors as they form just a small portion of the investors, but more because of global problems.

According to Chakraborty, it’s impossible to say who has sold and at what point they sold at. He added that it was mostly the FIIs who sold, as they are very scared, both in the US and our markets too.

Ambareesh Baliga, Karvy Stock Broking feels that long-term retail investors will hold on to the Reliance Power stocks. From the retail side, I do not think there will be too much of selling happening at this point of time. Those who had to sell off - basically those who had bought only from listing gains point of view, were surely disappointed. They may have already exited and those who bought for long-term, will actually hold on because after all they have not bought a Reliance Power, they have bought Ambani Group company,” he said. What should an HNIs do now?

Tulsian says: “I don’t think that HNIs have any option. Their interest cost is close to Rs 125. And now since the issue is ruling at around the issue price, which is Rs 450, they have the option to book the losses and get out of the counter.”

“A majority of them (HNIs) would be cutting their losses and get out of the counter. But I do not equally see the prices bouncing back beyond Rs 500 at least in the next 15 days or so; because on every rise, you will see investors getting out of the counter. There are over 41 lakh investors, of which closer to 40% have gone purely from the listing gain. And since they got the allotment at Rs 430, it would always be tempting for them to get out of the counter even at Rs 450-460,” he says.

Few brokers think there are value picks still avaliable from a poll carried out by CNBC-TV18. Out of the 15 brokers polled, 20 per cent fell in the above group. 40% were willing to bet long term on power stocks. Although, 7 per cent still thought Reliance Power is not overvalued and 33 per cent think there are better picks outside of power.

Most comfortable price of Reliance Power would be Rs 350-400, 33 per cent thought.