Reliance Power IPO: What went wrong?

I am lucky, just because both my predictions about Reliance Power IPO Review and Reliance Power IPO Listing are approximately true! Again,I’m just lucky.

Now I’m not here to strut around claiming that the dangers of stock markets and IPO investments that I was worried about, have come out to be true, but after every exam, every failure, there are lessons to be learnt. Every question that I missed or answered incorrectly in the exam, I remember it for life. I was lucky, so I’m repeating this phrase again and again. Markets work randomly & one has to be lucky to make money in the markets!

So what went wrong with Reliance Power IPO? It was supposed to be the awaited listing. It was the IPO that caused millions of demat accounts to be opened. It was the IPO which was trading at double the offer price in the grey market trading. Still on the listing date it went for a tailspin.

The reason was markets and the behaviour of market participants. Everything was good. Despite the cancellation of Wockhardt and Emaar MGF IPO, the markets were waiting for Reliance Power IPO to be listed. The hope was that the Reliance power IPO listing will give a new positive direction to the markets. But it failed miserably.

The reason can be partly contributed to the HNI behaviour – The High net Worth individuals. These are people who apply with crores of Rs., generally on loan. Hence, they were going with the expectations that this IPO will have a fantastic listing. They took up huge loans and applied for IPO in maximum possible quantity in the NI quota. They were paying heavy interest each day. Hence, pressure mounted due to the accumulated interest. They saw that the listing price of the IPO was hovering in the range of 400-430, with no signs in sight that can give a kick start to this share price of Reliance Power. Hence, to cut their losses short, they had to sell the shares.

As selling pressure mounted, the price went down further.. Touched a bottom of 355 or so, and finally closed at 370 or so.
The retail investors also panicked – especially those who had taken a loan for this IPO. Nothing in sight in the near term, they were forced to sell. Same was the case with FII’s and other institutional investors. All invest and trade with limited capital, usually on leverage. All were forced to book losses.

What should the retail investors do?
I usually do not give any trading advice. But if you have the capacity, you can hold on. Forget about it for 3-4 years. Though my valuations tell me that even for 3-5 year horizon, this stock is not worth the initial grey market trading premiums. However, at this level, one may think of holding onto it. If you have the capacity, hold on and forget this stock. It will give you good returns in the long run. Reliance is a big name.

Lessons to be learnt: Again, I’ll repeat - Markets Work Randomly, there is no timing or sure shot money making machine (IPO, short term trading, long term trading, etc) All you need is LUCK, LUCK and LUCK. All the best!

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