I have frequently reiterated to the readers
of the blog the possible collusion between merchant bankers, brokers and
sub-brokers and stiff the public with high priced stock or junk stock.
Let us talk today about the Indian IPO
market. Reliance Power Limited, in my
opinion, was the reason for the beginning of 2008 stock market crises in India.
Most of India’s merchant bankers and who’s who in the IPO business, created
this hype and glory about how this stock would change your fortunes. Many brokers and sub-brokers assured their
customers that the stock would list at four-digit figures despite an initial
high price of Rs 450/- per share.
Here are some more details, mostly from
gossip and grapevine. The people
associated with this fraud decided to spread the message by spending millions
on a campaign. The campaign included the
grey market operators who initially bought the shares for a premium of Rs
3000/- per share application. This amount got many investors curious. The operators then decided to move the
premium up to Rs 5000/- per share application.
The Indian public got crazy about the stock and began fantasizing about
the price at which the stock would list.
The operators then decided to move the price up to Rs 7500/- per share
application. This was done near about
the application date. The people of
India soon decided that they were about to hold the bluest of the blue chip
stocks.
The Draft Red Herring Prospectus clearly
listed the fact that it would be eight years before the company would go
operational. However, Indians lapped up
the issued. The share listed poorly and
is quoting today at 25% of that value.
Further attention is drawn towards SKS Microfinance,
DLF, etc.
Did your broker sing you a song about these
stocks? If so, you may want to rethink
about the quality of information he/she may dish out to you.
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