Are experts, brokerages bullish on Coal India IPO?

India's largest coal producing company Coal India's (CIL) initial public offer (IPO) is set to open for subscription on Monday, October 18, 2010. The company aims to raise more than Rs 15,000 crore through the IPO, which is the largest amount IPO in Indian history (previously Reliance Power was the biggest IPO, which raised more than Rs 11,000 crore via IPO).

This IPO is a part of the government's divestment programme and the entire amount will go to government, which will hold 89.99% stake post dilution. The issue will open for subscription till October 20 for qualified institutional buyers and October 21 for non-QIB buyers. Even the employees and retail investors will get 5% discount to the issue price.

Majority of experts as well as brokerage houses advice investors to subscribe to the issue as they like the company's growth and believe that it would consistently grow in future as well. "There is major demand for coal by power producing companies. Also Coal India provides cost at lowest price and valuation looks attractive," they reason.

Everyone agrees that pricing of the issue is better-than-expectations. The government has fixed a price band at Rs 225-245 a share and is offering more than 63 crore shares via IPO.

Prithvi Haldea, MD of Prime Database is happy with this price band. "I think this is a very good valuation but the more important issue is that the institutional investors should find this price attractive."

Futher he said the 5% discount will be good only in case the institutional response is very high, but would have been elated if this discount would have been 10% because motive and objective should be to get more and more retail investors. "Remember Reliance Power got 46 lakh investors for its IPO, Coal India could have got more. It still could happen even with 5% discount provided the institutional response is very strong," he explained.

But Jagannadham Thununguntla of SMC Capitals said, a 5% discount is definitely a good opportunity. "Though this 5% discount may not sound as such a big attraction in an FPO but in an IPO it makes sense."

"Even in the large picture point of view it is a very good opportunity for India to increase the Demat account penetration which has been a big problem in India because we hardly have 1.8 crore Demat accounts which is less that 1.5% of the Indian population. These are the kind of IPOs which create that kind of excitement to increase the Demat account penetration," he reasoned.

Even Deven Choksey of KR Choksey Securities feels that the band is better than expected and Thununguntla too says price band is quite reasonable and sensible. But SP Tulsian of sptulsian.com feels quite expensive.

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Mkts tank further: How are experts reading this volatility?

The week went by has been chaotic for the markets with umpteen twists and turns. What kick started with an elated mood lost steam mid-way and closed with a cut of over 0.5% on both the Nifty and Sensex. Friday was extremely disappointing with a fall of nearly 2% on the bourses? the Nifty shut shop at 6,062 and the Sensex closed at 20,125.

Wednesday?s magnificent triple digit rally made way for talks of a new high that the markets might hit. This was soon followed by a 150 points drop leading to pressure being built up. So how are experts reading into all this volatility?

 

The markets are currently driven by liquidity and at some point people would find it a bit expensive, says Ambreesh Baliga of Karvy Stock Broking. ?They would be pulling out liquidity and that?s exactly what is happening right now. Traders feel that possibly the markets do not have too much of an upside from here. Because of which people are booking out at this point of time and I think again we are close to that 6,070-6,120 band. And, in case we break that then yes I think there is some more trouble for us.?

Technical Analyst Ashwani Gujral says, ?I won?t say the market has broken down; it?s been doing these wild swings because a lot of weak hands have recently entered?it?s still between 6,050 and 6,240 and you wouldn?t be surprised in watching another 300-400 point up in a day because once the market starts moving in one direction everybody piles on. So I don?t think it?s a very trending market, it could remain very volatile but within a range.?

The cash pull out can take the market down by a couple of 100 points as far as the Sensex is concerned. ?It depends on how much oversubscription we are eventually looking at. Coal India being a 15,000 crore issue if you are looking at 20 time subscription, we are looking at about Rs 3,00,000 crore being used as margin for subscribing to the issue. The money will come back definitely but for sometime this kind of profit booking, this kind of pressure in the market will be there and this last two days we have been seeing that and somewhere this will end. But we have to be bear with it and I think it?s a great opportunity for long-term investors or anybody serious about markets to come in and take position. Nothing has changed, fundamentals haven?t changed, and it?s just the liquidity story playing out one way or the other.?

For the next 7-10 days, the nifty has a base of 5,800-5,830, says Baliga. ?The markets will possibly hold on in this range at least till the Coal India IPO gets over. Post that there could be decent amount of selling coming in and we should possibly look at much lower levels because we feel that the markets are overvalued by nearly 20%. The real value for the market at this point of time seems to be closer to around 4800-5,000. So once it breaks that 5,800-5,830 we should see those levels but at the same time during the next one week I will not be surprised if we again try to scale that 6,200-6,220 mark but that again should be utilized by people to sell.?

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