Reliance Power IPO: Part Payment Details

Here are the additional details and table on how to apply for the Reliance Power IPO and how much. The article also contains details about the part payment and table for easy understanding. Not my original Post, but got as a email forward.

RELIANCE POWER LIMITED – PUBLIC ISSUE

Issue Opens On : Tuesday, January 15, 2008

Issue Closes On : Friday, January 18, 2008

A Discount of Rs.20/- Per share to Retail Individual Bidders (Retail Discount)

Price Band : Rs.405 to Rs.450/-

Special Discounted price for Retail : Rs.430/- (Rs.450/- -Rs.20/- discount)
Payment Method I (Part Payment) : Rs.115/- for both Retail & NIB

Payment Method II (Full Payment) : Rs.430/- for Retail & Rs.450/- NIB

Bid Lot : 15 shares &in multiples of 15 there after

Maximum Shares for Retail : 225 shares

Illustration of Bid lots and Application Money:

No. of Shares	Application Amount - Retail Category		Application Amount - NIB Category
	Part payment @Rs.115/-per share	Full payment @Rs.430/-per share	Part payment @Rs.115/-per share	Full payment @Rs.450/-per share
15	1725	6450	1725	6750
30	3450	12900	3450	13500
45	5175	19350	5175	20250
60	6900	25800	6900	27000
75	8625	32250	8625	33750
90	10350	38700	10350	40500
105	12075	45150	12075	47250
120	13800	51600	13800	54000
135	15525	58050	15525	60750
150	17250	64500	17250	67500
165	18975	70950	18975	74250
180	20700	77400	20700	81000
195	22425	83850	22425	87750
210	24150	90300	24150	94500
225	25875	96750	25875	101250
240			27600	108000
255			29325	114750
270			31050	121500
285			32775	128250
300			34500	135000

Checklist:

1. Cheque / Demand Draft Should be drawn on Reliance Power IPO – R, (for both Retail & NIB Categories). Outstation cheques will not be accepted.

2. Application and cheque should be signed and dated properly.

3. PAN number should be mentioned in the application and a copy of PAN Card must be attached to all applications irrespective of value.

4. Age of the first applicant should be mentioned in the form. Minors cannot invest in public issues.

5. Demat account is must, DP ID & Client ID should be mentioned in the application.

6. Only Retail Category of investors can bid at “Cut-off” price, others should specify the Bid price at which they want to apply.

7. Bids should be in multiples of 15 shares only and bid price should be in multiples of Rs.1/-

8. Bids below the lower end of the price band & above upper end of the price band should not be accepted.

9. For NRI applications, the cheque/dd should be payable in the location where there is NRI collection banker.

10. In case of bids by other than individuals and HUF or bids by GPA holders, the relevant documents such as GPA copy duly attested, Memorandum and articles of association (MOA) and board resolution etc., must be attached.

ON THE CLOSING DATE i.e., on 18/01/2008

BID FORMS WILL BE ACCEPTED TILL 1.00 PM ONLY.

THE APPLICATIONS WILL BE ACCEPTED ONLY TILL 3.00 P.M UPTO 17/01/2008 AT ALL NON-BIDDING CENTRES

Here is the Review of Reliance Power IPO

Review of Reliance Power IPO

The much awaited “Reliance Power IPO” is all set to hit the markets on 15th January.

How good is this IPO? Should I invest in Reliance Power IPO? What are the basics to look for while investing in the Reliance Power IPO?

Before we get into the details, let’s look at some of the latest news items.

More than 1 lakh Demat Accounts will be opened in next 3 days just for the Reliance Power IPO. People stood in the queue for hours in various brokerage firms to get the accounts opened for their family members. Just for getting a demat account so that they can apply for the maximum possible number of shares in the Reliance Power IPO.

Grey Market Trading: is going on for this IPO. Against the offer price band of somewhere around 400 to 450 Rs. per share, the current grey market price is trading at a whooping 900 Rs. or so (as per the news) – almost double that of the offer price.

What do the above news items tell us?
First thing – the IPO is eagerly awaited. And it will be heavily subscribed. No doubt about that. But what it means to we, individual investors? It will mean less allotment and hence hopeless returns than what we expect. The mathematics of IPO share allotment and probability calculations are covered in this article.

If we go by the grey market trading prices, then the Reliance Power Company at the grey market rate of 900 Rs. will be valued at something like 2 lakh crores. Current valuations suggest that even if the company manages to double the proposed power production, then also it will take atleast 3-5 years for the company to justify the price of 900 Rs. a share or a 2 lakh crore valuation. That too everything goes well with double the proposed production. So from the valuations perspective and the grey market trading prices, the issue does not look very attractive even in the long horizon of 3 to 5 years. May be the company discovers something really great and that turns out to be a great profit making business, otherwise the grey market prices are not justified.

However, we need to understand that the grey market prices are the once that are setting the returns expectations. If one can get out of this expectations business, then it may be justified. Still due to the euphoria, the less allotment of shares will mean no significant profits.

As covered in the article, Stock Picking: Good Company v/s Bad Company, I had quoted the example of TCS IPO. That IPO also had grey market trading. Against the offer price of around 775, the grey market price was trading at 1200. However, on the listing day, the closing price of TCS was just 998. What happened?
No one knows. Even though the grey market trading was going on at 1200, the close price was 998, well below 20% of the grey market trading price. Later, in a few months, it went down further.

Some day or the other, the market comes to its senses. For TCS, it came to sense on the very first day – later even more. What can happen with Reliance IPO, only time will tell. Both Reliance and Tata are well trusted houses in India, so definitely the craze that went on for TCS IPO, much more than that will be for Reliance Power IPO.

Now the problem does not stop there. Let us not forget what happened with the IndiaBulls IPO and the follow up. IndiaBulls shares were offered at 16 Rs. However, it started climbing like crazy and went up like a rocket. Seeing that performance, Other brokerage firms like IL&FS, who were initially planning to launch their shares at a mediocre rate, doubled or even quadrupled their IPO price. The list includes IL&FS, Religare and recently concluded Motilal Oswal issue.

If this Reliance IPO is successful, then JP Associates and other power companies are also in the line. They will become very demanding for their IPO, which might ultimately trigger a high price for the entire power sector.

Ultimately, what can be done here? To invest or not? Well, I have always been of the “Randomness Opinion”, and the probability value calculations tell me that my money is better safe in the bank Fixed deposit savings account. One may take a chance, lucky if you are allotted, unlucky if no or less allocations. All the best!

Table of Contents Tabular Details of Reliance Power IPO Part Payments

Stock Market Trading Strategies-1

Andy has left a nice comment on my previous post – Andy wants to beat the bank rate!

Actually, that is one of the very good targets to achieve. People have different targets – some like Mutual Fund mangers go after the market index they are tracking, and they attempt to beat it. Some traders try to beat the bank Fixed deposit rate (as Andy is attempting to do), some have individual targets fixed for themselves, depending upon what they want to achieve, and the rest just don’t know what to do. Unfortunately, majority of us fall in the last category – we just don’t know how much we want to achieve and in how long horizon.

In stocks trading business of selling and buying stocks, one of the things that’s always good to achieve is to have knowledge about what you want and in what time period. If we have certainty in our ambitions, then 50% of our work is done. If we don’t have any certainty in what we want to achieve, we are already half way defeated. It’s easy to see our stock price going up by 50%, but having no target in mind means we have no clue about how long should I wait for and how much return can I expect from this stock. Even if we have that in our minds, we cannot be sure when this target will be achieved.

Anyways, traders are traders. It is commonly observed that people get fascinated about the rise they see in the stocks they are holding, they keep on holding the stock for long but uncertain time – just to observe that one fine day their rising stocks have taken a U-turn and started going down. They get fascinated with their holdings, build up strong belief that the stock would once again rise and hold it. Ultimately, no one has any clue on what they want to achieve.

As stated earlier, half the problem is solved if we get out of our stock holding fantasies and affections that we develop with our holding shares. If you are a long term investor, define to yourself what long term is. If you are a short term trader, decide what short term for you is. Nobody other than you can help you!

Andy has raised a valid point and I would say it is a very good strategy for any trader to have an aim to beat the bank rate in a year. The reason – banks rates are, generally, always positive, while the return from equities or stock trading, even index based ETF may turn out to be negative. Hence, suppose in the next year the index like Nifty goes down by 20%, then your ETF investment will also go down by 20% or so. However, if you manage to keep up your trading activities and follow you goals religiously to beat the bank rate of 10%, then you will be outperforming the markets by 30%. Even fund managers fail to do so, traders aspire to do so consistently – some fail, some succeed.

On the other side, instead of going down, if the markets go up by 20% and you are still with a little more than 10% of your returns beating the bank rate, then you will fall much behind the market.

Continue to Part II of this article

Stock Market Trading Strategies-2

This is part II of the article: Stock Market Trading Strategies-I, please read the first part before proceeding with this part:

Ultimately, it depends upon your psychological biases and targets that you set with the level of certainty. As I’ve explained in my previous post Forex currency trading and Hedging strategies, that hedging is used for eliminating the risk and to achieve a certainty in the future prices. So if you loose on a significant bull run while you are in a hedged position, you should not repent because your purpose for hedging was to eliminate the risk and achieve the desired level of certainity in your profits.

Same thing goes here as well. If you are happy by beating the bank rate, don’t repent on loosing on a 50% bull run in the market.
One more thing to notice is that you should know how to calculate the profits. That includes deducting the brokerage charges, demat charges, internet charges (if you pay for it), phone calls (if trading by call-n-trade) and basically anything that accrues a cost for your trading activities.

Another aspect of looking at this strategy is effort v/s reward. Is beating the bank rate justified for the amount of time, effort and energy you put in?

We should not forget that the bank rate that we get is effortless and with 100% certainity. You just walk into a bank branch, put in your money with a particular saving scheme in a bank account and walk away without any worries. You come back on the maturity date and happily take away your money plus the interest or return that you’ve earned. Simple and Straightforward.

But is it same for trading stocks with having an aim of beating the bank rate? One cannot quantify the effort you put in stock picking skills, the time you invest in researching the stocks, or refreshing the stock prices webpage for trading on a daily basis. It is difficult to keep track of internet usage or telephone bills. We tend to forget the demat charges and brokerage fee – even if we do so, we do not usually take the time value of discounted cash flows.

Ultimately, this is the randomness that one trader has to fight against. No one can have any control on which way the market goes, which way the stock prices move and how much you can make from your stock picks. Remember that it is not possible to quantify the efforts that you put in while trading, leave apart the brokerage and other charges. No point in beating the bank rate by a mere 1% or 2%; one just has to be lucky to make a significantly high profit than that offered by the bank.

How to select a stock broker

In almost all of my articles, I’ve primarily focused on the risk part of any stock market investment, trading or transaction. Along with that, I’ve also touched the transaction costs associated with a stock buy or stock sell that you do, a mutual fund investment that you make or exit, a forex currency trading transaction or insurance policy – everything comes at a cost. You cannot ignore the effect of transaction costs in any transaction related to investments, trading or insurance purchase.

Now all these things related to transaction costs depend upon the stock broker that you deal with or the insurance agent whom you involve in or the mutual fund advisor or mutual fund investment agent that you consult. Hence, it becomes very very important for you to know about the charges they take and what you should keep in mind while selecting a stock broker

In this article, I will list some of the tips and points that one should keep in mind while selecting a stock broker or an insurance agent or a mutual fund advisor. Questions covered are: How to select a stock broker, tips for selecting a stock broker, transaction charges of a stock broker, questions to ask to a stock broker, etc.

Begin with a simple example. Let’s say my broker charges me 1% for each transaction. Fine with me, I don’t care, I heard from a friend that this broker is good, so I’ll go with him, I’ll pay high for good services, etc. etc.

If I buy stock worth 10,000, then the actual buy stock price to me will be 10,000 + 1% of 10,000 = 10,100. Now suppose I’m lucky that the stock I bought went up by 5% and hence stock purchase is now worth 10,500 and I sell stocks to realize my profit. I will have to again pay 1% of brokerage, which on 10,500 will come to 105 Rs. Hence, I will get a net 10,500 – 105 = 10,395!

So on total investment of 10,100, I made 10,395, a net percentage return of (10,395-10,100)/10,100 = 2.92%. Now remember that the stock went up by 5%, then you were able to make only 2.92%. What you’ve paid to the broker is 2.02%. Hence, even without investing a penny, the broker has made 2.02% profit, that too without any risk.

However, we will not be worried about the broker. Let us only concentrate on our profits. Suppose instead of charging 1%, my broker charges only 0.5% brokerage. Hence, the 10,000 stock investment will cost me 10,050 and when it rises by same 5%, it will give me net 10,500 – (0.5% of 10,500) = 10,447.5. Calculating the return on investment of 10,050, it comes to 3.96%.

As you can observe, my returns have effectively increased by more than 1%. Not only that, my total investment amount is also less, 10,050 compared to 10,100.

Hence, when you keep on trading frequently, the % brokerage you pay significantly affects your profits. The markets are efficient; hence one needs to know how to trade within short spreads. It was easy for me to assume 5% increase in stock price, but do we see it always? No.

Selecting a broker therefore is an important aspect of trading and investment – be it for short term trading, long term investment, mutual fund unit purchase or any financial instruments.

• It must have online trading facility:
In the present mobile world, it is now almost impossible to be with a broker who does not have online presence and online trading account facility. I may be in New York, Tokyo or Sydney, but I may be trading in the Singapore stock markets. Hence, having online trading facility is very important

• Off market order placement facility
If I am in New York in a different time zone and want to trade in Indian Markets, I do not need to keep awake all night to place my orders. My broker should allow me to place trade orders for selling & buying stocks anytime during the day

• Depot and nostro facility

One of the most important things that you need to know is whether the broker offers both Depot and Nostro services. Depot means your demat account where you keep your shares. Nostro means your bank account where you keep your money for buy and sell of shares. Both are important as you need money as well as shares to keep trading or buying for long or short term. Hence, a stock broker that offers you both depot as well as nostro is the best bet. The reason is that the money movement does not take much time.
However, it all comes at a big cost.

• Transaction charges:
As illustrated above with the numbers, you should know how much your broker will charge. If you are not clear of the charges, you will be on a loosing side, as majority of the profits will be given to the broker as brokerage

Continue to part II of this article

Selecting a stock broker

This is part II of the article: How to select a stock broker . Please read the first part of this article before continuing with this part

• Minimum Brokerage per share:

This is again another important point to notice. A broker like IL&FS charges minimum 10 paisa per share. A friend of mine, who used to trade in penny stocks, was unaware of this. He bought a penny stock costing 10 paisa and the buy stocks order was executed with 100,000 shares costing him 10,000 Rs. When he received the account statement, he observed that he has been charged 10 paisa per share as buy price + brokerage of 10 paisa per share + Service tax + Securities transaction tax. Ultimately, his buy price came to somewhere around 23 paisa per share, more than double of what the actual buy price was - also due to rounding of numbers. So for his stock purchase to be in profit, he required the stock to atleast cross 23 paisa, i.e. more than double the stock price.
That was not all. The same brokerage applied to sell orders as well. Hence, the required sell price was expected to come to more than 45 paisa, for him to just get back his invested money. It means the market price of his penny stock should increase by 4.5 times or 350% rise. Do we expect this to happen? He learnt it the hard way.
So always ask the broker how much is the minimum brokerage you charge. Like ICICI may have a 1 paisa per share brokerage, but it charges minimum 25 Rs. as brokerage on each order.

• Minimum Deposit required at the broker:
Another very important point. The money with the broker does not earn any interest. So the more deposit you give him, the more interest you may loose.

• Demat Charges
How much demat charges you have to pay? Does it depend upon the number of shares you hold? No. of different stocks you hold? Are there any minimum quarterly charges that you need to pay. While making profit loss calculations, we all tend to ignore these charges, but they eat up majority of our profits.

• Call n trade charges:
Along with the online access, some brokers allow you to call them on the phone and place trading orders. In case you don’t have internet access, then you may like to place orders on the phone. However, they may charge you for that. Ask them how much is the charge per call? Are there any minimum no. of calls free? Is there any varying rate of charges?

• Does the broker offer you a toll free number to place order
You may end up holding for long time and increasing your phone bill, just to place your order. This does not show up in your profit/loss calculations, but is an ultimate loss to you.

• Response time of website, on hold time on the phone
This should be another crucial factor to notice. If the markets start going down, within a few minutes your portfolio may be in big loss. The website of the broker should have good response time to hold such traffic. The telephone support should have large number of order takers to accept your order. Otherwise, if you want to sell in a falling market to cut your losses and you are put on hold for long time or the website goes down, then you end up on the loosing side.
The best way to know is to ask, ask and ask – your colleagues, friends, other traders – collect sufficient feedback before finalizing a broker.

Just to quote an example as indicated by Siddhartha in the comments of my previous post, ICICI charges 75 bps, Indiabulls charges only 25 bps – How can there be so much difference in charges?

The reason is quality of service and facilities. For example, you have a toll free number for Indiabulls, but yet there charges are less. The reason may be long on hold times or charges they may take. Website of ICICIdirect and its speed and uptime may be much better than that of India bulls. The biggest advantage of ICICI is that it has both depot and Nostro facility, so you don’t loose any interest on the amount that you keep with them. For Indiabulls, you don’t get any interest on the money you deposit with them. Also, you can easily transfer money from your bank account to your brokerage account. You can do the same in Indiabulls too, but you will then be directed to your banks website, hence there is a risk.
For example, when I book railway tickets online through irctc website, I pay through my internet banking account. After selecting the journey details, I am redirected to my bank’s website. Once I confirm my payment, I am again brought back to irctc website. Several times it has happened that I made the payment from my bank, but it did not reach irctc. The result, tickets were not booked, yet money was debited from my bank account. Then I have to follow up with customer service of irctc to get my money back and again book the tickets afresh. Entire refund process takes 4-5 days. Same may be a case with brokers which do not have depot and nostro facility together.
There can be several other factors that I may be not be aware of completely.

A good initiative would be to start by writing your experiences with your respective brokers in the comments section of this article. This way, it will be easy for you to get a collective feedback about all the various stock brokers – ICICIdirect, Indiabulls, 5paisa, IL&FS, Religare, RelianceMoney, etc. etc.

Just quote some sentences about plus and minus of your broker, and soon we can have some good amount of feedback to decide what’s good and what’s bad. That will really help in the purpose of this site.

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Mutual Fund: invest with caution and through right channel

I do not usually like to repeat information and news, but this one is good enough for the investors who have deep trust and faith in the Mutual fund investments.

I have always been against the charges that are taken from the investors in the name of fund management, entry load, exit load, distribution costs, etc. and that is why I always say that better to go for ETF’s instead of Mutual Funds. However, some respite is being offered by SEBI to the mutual fund investors.

As a new year gift to the investors,The SEBI has finally approved of waiving off the mutual fund investment entry load charges. What this means is the entry load charges when you invest into by buying a mutual fund units will not be applicable. This will save you something like 2.5% of your money.

However, there is an important point to understand clearly about investments in Mutual funds and getting the entry load waiver. The condition is that you MUST directly apply to the Mutual Fund house, instead of routing your application through your broker or agent. This point is very important to understand because people are still under the impression that if they have an online trading account with a broker, they can simply apply online for any mutual fund and they will not be charged any entry load.

My understanding is that this is NOT the case. Please verify it by calling your broker.

The mutual fund entry load charges will be waived off IF AND ONLY IF, you apply directly to the Mutual Fund company, (Mutual Fund AMC or Asset Management Company), which is offering the mutual fund. Hence, if I am willing to invest in the HDFC mutual fund, then I MUST apply directly on the website of HDFC mutual fund, by using my debit card. OR, I should go to the office of HDFC Mutual Fund in my city and fill in a paper form and submit a check to apply.

As per my understanding, if my stock broker allows me to apply for mutual funds through online trading on his website (like icicidirect.com or sharekhan.com) and I apply through my online brokerage account, then I WILL be charged the entry load. The reason is that even if I am applying online, the online application is being routed through my broker (or his website), hence it is NOT a direct application, so I should not get any entry load waiver. Please verify it with your broker and confirm whether you will be charged entry load or not. (The above is as per my understanding of rules).

Who would be affected? It will be the agents and middlemen who have been making around 4% to 8% of money who will loose their business. Secondly, the small fund houses who do not have online application facility and do not have significant presence in different parts of the country will be affected, because they rely upon these agents to sell their mutual fund products. However, in the name of saving the entry load money, the investors will now apply directly to the fund houses or AMCs and so these small funds with limited presence and no online application facility will be hurt.

Still the problem may not be solved. They entry load has been vanished, but it is possible that the mutual fund industry, which is the bread and butter of stock brokers and agents, may come up with some other charges, or increase the exit load charges and so on to recover the cost. No guarantee how the market will work – its only in a name.

Invest wisely, first understand the rules and act accordingly! Wishing everyone a New Year with healthy and fruitful returns!

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