The power of R-Power

My friend Srini, an avowed stock market enthusiast, is downcast for the past couple of days. He rang up today morning sounding somber, and wondering how long the downslide will continue.

It didn’t need much prodding to make him forecast ominous days ahead for the Indian stock market. “17000 is where the Sensex is headed,” he remarked, continuing, “Curse me.. I should have sold some stocks last week.”

Srini is among those investors who do 2 things that pundits say are not the right ways to reap the long-term benefits. They constantly shuffle their portfolio hoping that the new buy will be better than the one bought 2 weeks back. They also attempt to ‘time’ the market.

Both belong to that style of investing what the long-term investors will scrupulously avoid. The latter will in fact ‘up’ their holding at every decline once they’re convinced about the intrinsic value of a stock they’ve chosen.

The essential difference between people like Srini and long-term players is that, while the former fear the market and are always apprehensive of it, the latter love the market and maybe rejoice when the prices slide downward.

I sympathized with Srini, and asked him, “Did you subscribe to R-Power?” His mood livened up immediately. For sure he did, and why won’t he?

It appears the entire Indian investing class has put in their money in Reliance Power. The stats say the R-Power IPO has closed with subscriptions exceeding Rs.7.57 trillion ($192.6 billion), which, according to today’s TT (Jan 19), is “Rs.77,000 crore more than what the Manmohan Singh government needs to run its operations this year’.

The Bloomberg says that the cumulative bids for the R-Power IPO is not only the highest in the country thus far, it is ‘equivalent to the aggregate market capitalization of companies listed in the Portugal and Czech Republic markets taken together’ (ref: ET, Jan 19).

Anil Ambani is likely to announce the final figures in a press conference today, and there is every chance the final figures will be more. [Image left: Anil Ambani, a voracious runner. Image source]

Now, here is the supreme irony. The R-Power IPO has boomed in the week when the Sensex has shed 1814 points – 687 of them yesterday. So what takes?

Here is the other part of the puzzle. In the week gone by over 10 lakh demat – the actual term is Depository Participation Accounts – has been opened. This I’m sure can be directly related to the IPO.

This means many retail investors have drawn in their money from wherever they can, including selling maybe good stocks (not surprising) they were holding, in order to subscribe to the R-Power IPO.

The euphoria has been so high that the mere mention of it cheered my friend Srini though he actually rang up to share his grief over the tumbling of share prices.

If Srini, the 15-year veteran in stock investing, can swear by a company that hasn’t yet had a noteworthy bottomline, what is the fault of new investors who have given in to the lure?