What is going to move the market from here?

The secondary market witnessed a steep downward movement last month. In the period of January 14-22 BSE30 Sensex lost 4100 points incurring a loss of 16,000 billion for the investors. When Nifty futures turned into discount, it created heavy short positions. Investors were not having enough money to meet the margin calls on their future contracts, and brokers were forced to sell in large numbers. The major drain of money from the secondary market happened mainly because of the following reasons-

1. Reliance power IPO, which came with a bid for nearly Rs 11000 Crores and got oversubscribed by 73 times.
   
2. Future Group, which came with IPO to fetch around Rs 490 Crores, got oversubscribed by 133 times.
   
3. FII withdrawal from the market amounted to Rs 13035.7 Crores in the month of January.

Though FII were selling in large volume because of global cues, the major part of domestic money was stuck with the IPO of Reliance and Future Group and no buyer was available in the market.

Now in the month of February, with fed cut in interest rate huge capital inflow is expected through FII’s. Reliance Power has completed the allotment of shares and it has refunded around Rs 1 lakh crores to the bidders. Future Group also refunded the sum for unalloted bids, which is around Rs 50,000 crores. This huge inflow in market is expected to make the market bullish in the short term. But the movement will majorly be decided by the sentiments, and any negative news will turn the market bearish. The concern over the recession in the US economy is going to keep the market volatile and investors need to be cautious about their investment.

Stock Markets Unwinded

Here comes an article which will let you know the basics of a stock market. So let’s straight away start the topic which I think is of interest to everyone in the country.

First of all for those who think that stock markets are the easiest ways to become rich, think twice as it is one of the most troublesome places. It can make one earn a crore a day and loose two the next day. So with this constraint in mind let’s try and know our markets a bit better.

Let’s start with what does bulls and bears mean. Bulls mean people who purchase stocks and bear the one who sells them. All of you must have heard of about market indices as BSE Sensex or Nifty. One see’s the value of indices jumping up and down throughout the day. What does the value mean? If we take example of BSE Sensex it is the weighted average of thirty stocks which are representative of all the sectors of the economy. Thus these indices change with the change in the underlying stock prices. The next question which must be floating in your mind is what causes the change in stock prices. Well there are several factors which can cause a change in the stock price. Some of them are:

1. Recession in the economy or industry
2. Lower than expected performance of the company
3. Getting a new contract
4. News of its merger or its acquisition

Seeing the factors listed above don’t one get a feeling that these factors are transient and one most see the long term growth prospects of the company. Well my friends the stock markets are driven by something known as “Market Sentiments”. Mostly these sentiments don’t take into account long term growth prospects of a company but are driven mostly by the things happening right know in the company or industry or economy of the country or the global economy as a whole.

Further, I would also like to add that demand and supply, which are yet again governed by the market sentiments play a huge part in deciding the price of the stock and in turn the index value.
Now as we have learnt about the stock price movements and index value movements let us move into a bit more detail to understand the kind of markets prevalent in the country. Now the place where shares do get traded are known as Capital Markets. These can further be classified into primary markets and the secondary markets. The primary market is one where the Initial public offer (IPO) of a company i.e. shares for the first time are on offer while secondary market includes the place where day to day trading happens. Now a few of you must be having doubts about how does the price of an IPO is decided as the share is still not out in the market. Well it a complex process and will discuss about it in the next article. So let’s wind up this article now and will be back with more articles related to the vibrant world of stock markets very soon.

SEBI might impose price band on IPO listing day

After observing the volatility of price and volume of IPOs of different issue size, SEBI analysed the movement using parameters such as issue size, price variation on the day of listing and the variation on subsequent days. The analysis gave a clear indication of the pattern – a quite high volatility on listing day which was not sustained after that specially for issue size up to 250 crore. The regulator is looking at imposing a price band of 25% on the issue price on the day of listing for IPOs up to issue size 250 crore. The decision is yet to formalize and SEBI is waiting for comments and suggestion from public on this proposal on or before January 31.

This proposal will be welcome news for the long term strategic investors. These investors decide on investing on particular stock after an in-depth analysis of the business of the company. The high price on listing day which could not be sustained on subsequent days, disappoint such investors and might prompt them to book profit on listing day. Steady and sustained price discovery will make the investment fair and attract strategic investment.

On the other hand those retail investors, who do not have much ideas of the business of company and bid mostly on last day after looking at the number of times stocks is oversubscribed, might be discouraged. If a stock gets oversubscribed 10 times in retail segment then even after bidding for 1 lakh (maximum limit for retail investor), one is expected to get shares worth 10,000 Rs. With an upper cap in price on listing day to 25% this investor can not expect more than 2500 Rs return, that is effectively on his 1 lakh investment (as the amount of unallocated shares comes back only a few days before listing). Thus a 2.5% (2,500 of 100,000) return on 20 days (average time from the day of bidding closure to listing day) even in bullish market condition while investment in secondary market could easily fetch 10-15% return.

SEBI needs to look on this step from different aspects for a fair movement in market. One solution for this could be investing a part of total bid rather than full amount. Recently Reliance Power IPO had given option of investing 25% of total bid size. With retail getting subscribed for more than 15 times and Mr. Anil Ambani’s approach to give shares to all retail bidders, the 25% investment will cover the amount required for the allocated shares. The regulation is expected to come in next month and suggestion prom public could help SEBI in taking a pragmatic decision without hurting anyone.

BSNL may sell stocks worth $10billion (Rs 40,000 crores) through India's biggest IPO

Indian Government announced on monday that it may sell $10 billion(Rs. 40,000 crores) stake in BSNL, one of the India's biggest telecom company. This will be done through initial public offering (IPO) of shares and fund will be used for expansions plans. BSNL will be the second biggest telecom company in Asia after China Telecom by market capitalization.

The IPO will value the BSNL at Rs 400,000 crore, much ahead of Bharti Airtel, the country’s No.1 company whose market capitalization is Rs. 172,179 crores (January 14, 2007). BSNL will also become the India's second biggest listed company after Reliance Industries Limited(RIL) which has market capitalization of about Rs 448,193 crore.

On Tuesday India's biggest IPO so far will be opened for subscription. A $3 billion (Rs 11,700 crore) IPO by Reliance Power will break the previous best record of 9,190 crores by the real estate major DLF Ltd.

World's top 10 IPO markets 2007

The top ten stock exchanges on the basis of amount of funds raised through IPO this year till Oct 07 are:

Rank	Exchange	Country	2006 Rank
1	NYSE Group	US	3
2	Shanghai SE	CHINA	9
3	London SE	UK	1
4	Colombia SE	COL
5	Sao Paulo SE	BRA
6	Hong Kong Exchanges	HK	2
7	Nasdaq	US	5
8	BME Spanish Exchanges	SPA	6
9	Australian SE	AUS	8
10	Bombay SE	INDIA

Those Stock exchanges which were not in top 10 in 2006 ranking are left empty in the 2006 Rank column.

The amount of IPO activities(million US Dollars) in these exchanges in past three year were:

Exchange	Jan - Oct 07	2006	2005
NYSE Group	53061	37130	44116
Shanghai SE	39597	11818	349
London SE	38404	55807	31169
Colombia SE	38034	195	598
Sao Paulo SE	28552	6041	2029
Hong Kong Exchanges	26129	42972	21291
Nasdaq	13622	17375	12193
BME Spanish Exchanges	13075	14663	7771
Australian SE	12602	12877	18050
Bombay SE	8713	5601	1319

Source : World Federation of Exchanges (WFE)

PetroChina crosses $1 Trillion mark

PetroChina created history by becoming the first company in world to cross trillion dollar mark in market capitalization. PetroChina's share were listed today in Shanghai stock exchange after it came up with an IPO last month. PetroChina's shares on listing today were trading at triple the initial public offer price. At these prices the valuations certainly look expensive but considering the kind of bull run that Chinese stock market is undergoing the stock can have some upside from these level also. The relative valuation of the Chinese Oil & Gas major can be compared by the fact that the second largest company by market capitalization, Exxon Mobil Corp., is only half of the PetroChina's current market cap when PetroChina is not even in world's top 50 companies by earnings. PetroChina's valuation can only be explained by the future outlook of the company and kind of growth Chinese economy is witnessing.

PetroChina is all set to surpass Exxon Mobil in market capitalization

The biggest listed Chinese company, PetroChina, has recently overtook General Electric to become the world's second-biggest company by market capitalisation, next only to Exxon Mobil Corp. Now, PetroChina is ready to beat Exxon Mobil Corp. This has been eased by the recent IPO which PetroChina came up with for the domestic investors. Presently, it is listed in HongKong and US. After its listing on November 5, its market capitalization is expected to be more than 800 billion USD. Exxon has a market cap of $ 485 billion and PetroChina's combined market cap in the US and Hongkong is about $450 billion.

Earlier PetroChina raised $9 billion in the biggest IPO of the China overtaking the record set by China Shenhua Energy when it raised $8.8 billion from investors last month. PetroCina's IPO is the biggest of this year.