Arbitary Obsessionist's Blog : Ambition is redundant. In life, mission is everything.

Why Reliance Power’s IPO tanked on listing ? Warren Buffet has the answer

with 2 comments

Reliance Power

Reliance Power’s IPO got fully subscribed in the very first minute of its opening (!!!) & attracted $27.5 billion of bids on the very first day, equivalent to 10.5 times the stock on offer. But the IPO was neither floated to augment any existing infrastructure of the company nor to expand the company’s presence in its sector. The money was to be used for funding the development of 6 power projects (from scratch) across India. i.e. The company was just a virtual entity till then (!!) And to get the shares in the IPO, people borrowed from various sources, hoping to make a killing on listing and paying back to ‘those’ sources.

Reliance Power debuted on the stock markets when the bearish phase of the markets had just started (January 2008). And ended the day 17 per cent lower than its issue price on the Sensex (BSE).

Yesterday, the stock closed at Rs. 122.60 (down more than 70% from IPO price)

So how does Warren Buffet (the God) answer our question “Why Reliance Power’s IPO tanked on listing ?”

He once said –

“When you combine ignorance and borrowed money, the consequences can get interesting.”

In Reliance Power’s context,

IGNORANCE – People were ready to pay a high price for a company that will earn its first Rupee after 5 years of IPO (!)

BORROWED MONEY – People dug into their life’s savings to invest in the IPO & some idiots even took loans (!)

Warren Buffet>Anil Ambani

(Buffet – “Hey Anil, Were you sleeping when you priced your IPO?”)

Like what you read ? Subscribe in a Reader or by Email

Share this post :


2 Responses

Subscribe to comments with RSS.

  1. making a mistake is not a crime but nt learning frm it is… but u surely have learned from ur mistakes on all fronts…;)


    November 5, 2008 at 2:39 pm

  2. This blog is really nice and informative.
    We think your visitors will like this posting.
    Is the news something you can actually act on? Are prices going down as quick as they go up?
    It’s the story of the tortoise and the rabbit. At the heart of things, we would all love to be the rabbit. But as quick as the price goes up, it can go back down. However, with the slow and steady method, you follow a well researched investment plan. Sure, it’s not flashy, but the chances of you making money in the long run are MUCH higher, and because you’ve diversified your portfolio, you also reduce your chances of losing your money to a particular bad event.

    So, while a stock tip MAY make you money, it may lose you money. But more millionaires are made the slow and steady way than are made with a single tip. So, go the proven way and follow your investment plan.

    Indian Stock Market

    November 7, 2008 at 10:23 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: