The Indian Stock Market remains an IPO Pump and Dump Heaven as shady promoters collude with equally unscrupulous Stock Market “Operators” to sucker retail investors.The typical story involves 3 actors,the promoters of the company,Stock Market “Operator” and unethical Investment/Merchant Bankers who collude right from the start to sucker retail investors.There have been a number of small cap companies like Aster Silicates,Tarapur Transformers,Prakash Steelage,Texmo Pipes etc who have followed the same script.Bedmutha Industries is now going through the same old story yet again as the stock has gone almost 20% below the issue price after showing a spectacular rise in the first days of listing.
slipped below the issue price of Rs 102 for the first time since listing. The stock had listed at Rs 114.40 on BSE on October 10, 2010 and touched a high of Rs 286.90 on October 21, 2010. Today the share closed at Rs 100.35, down Rs 5.25, or 4.97%. There were pending sell orders of 72,933 shares, with no buyers available.
Note most of these companies fundamentals don”t justify even half of the price at which these stocks were issued at.However these companies keep coming with increasing frequency even as the Regulator SEBI chides investment bankers without doing anything real to prevent the retail investors being defrauded again and again.Note Gravita India is another stock which is undergoing a “pump” currently .I expect it to be dumped shortly as the fundamentals of the company are pretty sorry compared to the valuation it is commanding.The illegal grey market of IPO’s , the small market cap of the company and the lax attitude of the Stock Market Regulator has made the Indian Stock Market a heavily biased casino.Here is an interesting article which has analyzed that the only way to beat the shenanigans of the “operators” and the promoters is to sell out on the very day of listing.
Putting it simply, there can be three options for you as an investor in IPOs. IPO performance data over the past three years shows that one of these is a winning strategy and the other two are not.
Scenario 1: Staying the course
‘Buy and hold for the long term’ is a strategy often advised to investors who wish to earn decent returns on equity investments over the long term.A whopping 60 out of the 107 companies that have listed in the past three years are now trading below their issue price!
Scenario 2: The Sitting Duck
What would be the outcome for someone wanting to get in at the time of listing of the stock and holding on to his investment? The situation would be grim, to say the least. Out of the 107 public issues over the past three years, as many as 65 are now trading below their listed price!
Scenario 3: Playing the Flipping Game
Ask any smart investor the reason for wanting to invest desperately in an IPO. Almost always, the answer will be: gains that come by flipping on listing. The price pop that is generally associated with the listing of a stock is why investors are so attracted to an IPO. Numbers support this. An astounding 95 stocks that hit the market in the past three years got listed above their issue price. This means that an investor has an 89% chance of adding value to his investment on the listing day itself.