IPO –Lecture I - Assignment I What is an IPO

8/14/2019 IPO Lecture I - Assignment I What is an IPO

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IPO Lecture I - Assignment I

What is an IPO

What is FPO (Follow on public offer), Fixed Price Public offer ?

What is book building process

Who is Registrar

Who are managers to the issue What is red herring prospectus

What is Green shoe option

Who can invest in ipo?

What are the 3 categories of investors as specified on the Application Form. Giveexamples of each

Basis of allotment, how can an application be rejected, documents to be submittedwith application

Why is the Cheque in favour of Escrow Account

What is grey market

Case study : Mahindra Holidays1) Company Details2) Risk factors3) SWOT of MHRIL4) Issue Details, what is offer for sale, what is Shareholding pattern, pre-IPO placementin January 20085) Past Financials with your comments6) Valuation of Mahindra Holidays standalone and vis a vis competition7) Oversubscription How is it tracked on NSE8) What is SOTP valuation, effects on Mahindra & Mahindra9) Based on listing what were returns for retail, HNI, QIB

10) Would you recommend taking a loan for the IPO?11) If you were a NBFC giving a loan, what would be the margin?12) CRISIL/FITCH/CARE rating of IPOs13) What is underwriting? When was last underwriting where underwriters had to pay?14) SEBIs attempts to make grey market redundant, using new banking system


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Marketnomics Assignment II

What is BRIC Goldman Sachs Report. How is BR different from IC

What is baby boomers Indias demographic Dividend, what is India growth story

What is the India Gas Story What is Fiscal Policy, how is used by the Government to spur the economy. Give

Examples

What is Monetary Policy. do-

What is WPI, CPI

How does $ , Oil affect inflation. $, gold relationship(Nymex, Brent, IndianCrude)

What is GDP, what is IIP

Is inflation good? What does RBI do vis a vis inflation

How are interest rates related to inflation

How are equity markets affected by inflation/interest rates

How are debt markets affected by inflation/interest rates

Discuss the Budget in detail

Green shootsTARPFed

Alan GreenspanBen BernakeMark Mobius

Mark FaberJim RogersGeorge SorosMadhu KelaNilesh ShahNagnathPrashant JainRamesh DamaniRakesh JhunjhunwalaWarren BuffetBenjamin Graham

Peter LynchRaamdeo AgarwalShankar SharmaUdayan MukherjeeArshad ZakariaSameer AroraRuchir Sharma


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Riddham Desai [on what constitutes a bull market]: Firstly, liquidity and second thing

is valuations. There is a lot of fear in the market place, market participants are notinterested because they think that stock prices are going to fall further because earningsestimates are going to fall further and we get to a point where they say stocks are tradingat six-seven times earnings big deal they are going to trade at three times and thenthere is a infusion of liquidity, which comes out of the macro cycle. That is very normalbecause growth has slowed down and there is excess liquidity in the system. Thiscombination then leads to the first rally in stock prices and then as these rallies build up,confidence grows, growth forecast improves, the economy improves and then ultimatelyyou get a raging bull market.Q: How would the fact that you also need a technological change or productivity

change, is it enough just that valuations are cheap? Cannot they remain cheap?

Desai: You need a fundamental change and that is quite important to the market. Everybull market is accompanied by change in fundamentals, whether that is a change intechnology or in the growth outlook of an economy because of demographic change whatever that change is that fundamental change is important otherwise it peters outand proves to be a bear market rally. So you get these three things going together and Ithink that is how a bull market gets created.Q: You have studied bull markets, you have studied yearly analysis; in your opinion

what is it that lights the match?

Raamdeo Agrawal: The first fundamental thing is there should be enoughpessimism to laythe foundation for the bull market. The pessimism, which leads to irrationally lowvaluations is the starting point of a bull market. For example in 2002-2003, after thedotcom bust after two years of sustained bear market almost third year of bear marketwhich is a history in itself valuations were crazy. The whole market was available at7-8 P/E multiple, Reliance was at 6-7 times P/E multiples and there were no takers forReliance. The market itself was at 1.5 times book. Pessimism was all over and there wasa belief that nothing could happen. Back then, I wished that out of the 40 stocks, two-three must reach a new. And it was a dream in the next 24 months, we saw half themarket was in a new high.Q: How important is liquidity? Is liquidity the mothers milk of a bull market?

Agrawal: Yes, definitely liquidity is a starting point because you need money to buystocks. Liquidity is very important, I have been ignoring liquidity as a propellant for themarkets to move but it is important. In 2008, we saw margins of safety to be negative atthe peak of the market but liquidity was huge, all over the world a USD 1 billioncheque was a small thing for inflow into India and again in January 2009, it was the otherway round. You couldnt even get USD 10 million.Q: GE also couldn't raise money.

Agrawal: Yes, GE couldnt raise money and that too even for an ultra mega powerproject (UMPP),you can't get USD 100 million credit.Q: Liquidity itself cannot assure a bull market? That would be a bubble right?
http://connect.in.com/profile/Raamdeo_Agrawal/449http://connect.in.com/profile/Raamdeo_Agrawal/449


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Desai: Absolutely. It is a combination, you need all factors in place and fundamentalstend to decide how long and how much the bull market will run. Liquidity provides thatfire to drive it. So at the start of the bull market, liquidity is important. Very few bullmarkets start without good liquidity conditions. Liquidity tends to be a corollary to a bearmarket, which is that once growth slows down, money supply does not shrink as much as

growth shrinks. So there is always that excess money stock in the market and that is howcentral banks and government try to work around a recession.

Strong rally we are doing this in 2009, are we in a break in a bull market or has the

new bull market begun?

Agrawal: I would think it is a start of new bull market except that usually euphoric timesare at the end, this time it is starting with the euphoria.Q: By definition that cannot be then: would it just be a strong bear market rally?

Agrawal: The depth of pessimism that I saw in 2008 tells me that nothing can be worsethan that. So for me that is a bull market, anything better than whatever I have seenrecently is bull market. I dont have any specific definition of what is a bull market or

bear market.Q: What is the leadership then in this bull market, in new bull market there must besome leadership? What according to you is the leadership here?

Agrawal: I think strong domestic consumer companies are going to lead the pack. Forexample, fast moving consumer goods (FMCG), two wheelers, banks dominatingconsumer credit cycle or catering to even corporate credits domestically, fundinginfrastructure, cement, domestic steel we can see the earnings profile even in thecurrent year. They are going to lead the pack in terms of earnings growth.Q: The market fell from 21,000 to 7,000 that was a bear market or a break?

Desai: It is something I struggle with. I am not so sure. If I look at the statistics, the last18 weeks have produced a near 80% rise in the market. If you go back to all the previousbull markets and see what they did in their first 18 weeks, the range of return is between35% and 50%.The 2003-2008 bull market produced 51% return in first 18 weeks. The market wasalready in a raging bull run by the time we came to the end of the first four months. Notdissimilar to this, except that this will produce even more returns which could time wellwith the point that Mr Agrawal makes. The point of pessimism in October was so badthat the swing up is probably going to be bigger than we had ever seen before because theswing down was bigger than we ever got before which is that the previous bear market if we can call it one was the steepest and the sharpest fall ever in Indias history.Q: Mother of capitulations?

Desai: Exactly, so you got a mother of bull markets and the mother of bear markets andmaybe you are already in another bull market.Q: Then you would expect the same leadership to go up?

Desai: The struggle I have is that if you apply the simple rules that we have learnt overthe years, growing up is thatleadership changes. It has not seemingly changed in this newbull environment which is that the same sectors that did well in 2003-2008 and thenpoorly in the bear market are the ones that are leading the charge. So maybe that is atransient phase in this bull market and maybe we go to new leadership over time but until


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that happen, there will always be a little bit of doubt of whether we are in a new bullmarket or whether this is just another bear market rally.Q: There is some evidence of leadership coming in in housing finance companies this

time for example or in FMCG sector, would you say it is too early?

Desai: I think it is a tad too early, though I concur with Mr Agrawal and my theme is also

the same, which is consumer is king, which is I expect the next bull market to be drivenby Indias core fundamentals. We have a big demographic change coming through, wehave seen that come very well nicely into the electoral results of the last 18 months. Ithink we will see it in the sector leadership that comes out in the next bull run as well, sodomestic consumption things like autos, media, even consumer goodsQ: Is there abject pessimism over these sectors in India right now?

Desai: It was the case probably in October in some of them but not all of them. So I thinkthat is the struggle that we will always have. So we probably did not get to the low point.But if you take consumer goods consumer staples there was pessimism for a longperiod of five years. So we are coming out of that long bear run in these stocks for a longtime, these stocks have gone nowhere.

Q: If you are right, how much money should we make in these stocks, there is an Xfactor in these stocks? In a bull market leadership: 100X, 50X is that the kind of

returns that people should hope for?

Desai: That isquite possible that some of these stocks give you these types of returns.Q: Do you think bull markets always end badly?

Desai: Yes, because what happens is that at the peak of the bull market, people get soeuphoric, the multiples get so rich that inevitably it has a bad ending.Q: Nature of beast?

Desai: Yes, that is absolutely the nature of the beast

IPO –Lecture I - Assignment I What is an IPO

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