Tuesday, August 16, 2011


Coal India is set to become India's most valued company and this watershed event may come as early as today. If Coal India rallies 2% and RIL is flat or negative, Coal India's market capitalisation would exceed Reliance. Yes, however surprising it may appear, that's been the extent of Reliance's capitulation and Coal India's rally. And for the first time since February 2007, Reliance will relinquish it's top position and it's an irony that it will lose it to a PSU having wrested it from another heavyweight ONGC, back in 2007.

There are couple of lessons the Government can learn from this. Since the day of Coal India listing, Nifty is down nearly 19%, yes it made its yearly peak on the next day of Coal India listing. During the same period, Coal India is up 57% if counted from the IPO price and is even up 13% if counted from its listing price. So a retail investor who managed to get allocation (and that too at 5% discount) is making 65% returns and even one who bought on its listing is making a healthy 13%, in a market which has collapsed 19% during the same period.

So the lesson number one the Government should learn is to come out with initial public offers (IPOs) of quality PSUs at a price which is so attractive that it brings a whole lot of investors to the primary market. The last time such an instance happened before Coal India was NTPC (the IPO of 2004, not the farce FPO last year) and that's what made a lot of money for small investors and actually attracted them to the primary market. At the end of the day, a retail investor would always prefer primary market if a good quality issue is offered at an attractive price. You don't want the situation of an NHPC where the stock is down over 30% from IPO price.

What's the second lesson here? I would go back to the event when Reliance took the top spot from ONGC. There was a time in 2004-2005 that ONGC's market value was double that of Reliance and we all know what happened after that. Reliance left it far behind and it's only recently that ONGC has even come into reckoning due to the collapse of Reliance's stock price. So the Government should draw a lesson that it has to protect the interests of its own blue chips. Of course the larger interest remains public welfare and it should do what it has to do to protect the rights of citizens of the country even at the cost of value erosion for some of these PSUs, but in that case, it should not look at listing such PSUs in the first place.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options of TV18 and Network18 given to him by his company as part of his compensation. Please consult your financial advisor before acting on any piece of advice in this article. This article should be used as only one of various parameters before making an investment decision.

No comments:

Post a Comment