The SBI Cards and Payment Services Ltd’s IPO (initial public offering) has opened today with much fanfare. The issue has already been subscribed 32% by afternoon on Day 1, according to some media reports. Brokerages are expecting bumper subscription and solid listing gains for the SBI Cards shares. But a few have also started taking note of the deepening Coronavirus jitters that are hitting the markets.
The Sensex and Nifty closed in the red for a seventh straight day today, losing a whopping 7.7% during this period.
While many believe that good IPOs usually sail through even in bad markets, some exceptional cases like that of Reliance Power Ltd show what a bad timing can do to a public issue.
For those unaware, here’s a throwback to what happened in January 2008. Reliance Power was launching its IPO and there was much frenzy around it, like there is today for SBI Cards. The company had fixed the issue price at Rs 450 per share for non-retail investors and Rs 430 for retail investors.
The IPO of the Anil Ambani-controlled firm generated bids worth over Rs 7 lakh crore and the issue got subscribed by more than 72 times. As usually happens after such over-subscription, investors were now waiting to cash in on the listing gains.
The shares of Reliance Power got listed on 11 February 2008 and surged as much as 19% to Rs 538 at open. But the rally lasted only four minutes – thanks to the equity selloff that began globally after the US housing crisis.
After four minutes of trading in the green on 11 February 2008, Reliance Power shares crashed to Rs 355 levels that day, wiping out billions of rupees of investors’ wealth.
After seeing the mayhem on the listing day, Reliance Power soon announced free bonus shares in the ratio of 3:5 to all categories of shareholders, except the promoter group. This was done to reduce the cost of Reliance Power shares to Rs 269 for retail investors and to Rs 281 for others, but the damage couldn’t be controlled.
After those four minutes of rally, Reliance Power could never ever manage to trade above the issue price again.
Of course, SBI Cards is not Reliance Power. And the coronavirus threat can’t really be equated with the 2008 crisis. But some caution and reasonable expectations, along with a Plan B, should always find a place in an investor’s handbook.
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