IPO –Lecture I - Assignment I

• What is an IPO
• What is FPO (Follow on public offer), Fixed Price Public offer ?
• What is book building process
• Who is Registrar
• Who are managers to the issue
• What is red herring prospectus
• What is Green shoe option
• Who can invest in ipo?
• What are the 3 categories of investors as specified on the Application Form. Give
examples of each
• Basis of allotment, how can an application be rejected, documents to be submitted
with application
• Why is the Cheque in favour of Escrow Account
• What is grey market
• Case study : Mahindra Holidays
1) Company Details
2) Risk factors
3) SWOT of MHRIL
4) Issue Details, what is offer for sale, what is Shareholding pattern, pre-IPO placement
in January 2008
5) Past Financials with your comments
6) Valuation of Mahindra Holidays standalone and vis a vis competition
7) Oversubscription – How is it tracked on NSE
8) What is SOTP valuation, effects on Mahindra & Mahindra
9) Based on listing what were returns for retail, HNI, QIB
10) Would you recommend taking a loan for the IPO?
11) If you were a NBFC giving a loan, what would be the margin?
12) CRISIL/FITCH/CARE rating of IPOs
13) What is underwriting? When was last underwriting where underwriters had to pay?
14) SEBIs attempts to make grey market redundant, using new banking system
Marketnomics – Assignment II
• What is BRIC – Goldman Sachs Report. How is BR different from IC
• What is baby boomers India’s demographic Dividend, what is India growth story
• What is the India Gas Story
• What is Fiscal Policy, how is used by the Government to spur the economy. Give
Examples
• What is Monetary Policy. –do-
• What is WPI, CPI
• How does $ , Oil affect inflation. $, gold relationship(Nymex, Brent, Indian
Crude)
• What is GDP, what is IIP
• Is inflation good? What does RBI do vis a vis inflation
• How are interest rates related to inflation
• How are equity markets affected by inflation/interest rates
• How are debt markets affected by inflation/interest rates
• Discuss the Budget in detail

Green shoots
TARP
Fed

Alan Greenspan
Ben Bernake
Mark Mobius
Mark Faber
Jim Rogers
George Soros
Madhu Kela
Nilesh Shah
Nagnath
Prashant Jain
Ramesh Damani
Rakesh Jhunjhunwala
Warren Buffet
Benjamin Graham
Peter Lynch
Raamdeo Agarwal
Shankar Sharma
Udayan Mukherjee
Arshad Zakaria
Sameer Arora
Ruchir Sharma
Riddham Desai [on what constitutes a bull market]: Firstly, liquidity and second thing
is valuations. There is a lot of fear in the market place, market participants are not
interested because they think that stock prices are going to fall further because earnings
estimates are going to fall further and we get to a point where they say stocks are trading
at six-seven times earnings — big deal — they are going to trade at three times and then
there is a infusion of liquidity, which comes out of the macro cycle. That is very normal
because growth has slowed down and there is excess liquidity in the system. This
combination then leads to the first rally in stock prices and then as these rallies build up,
confidence grows, growth forecast improves, the economy improves and then ultimately
you get a raging bull market.
Q: How would the fact that you also need a technological change or productivity
change, is it enough just that valuations are cheap? Cannot they remain cheap?
Desai: You need a fundamental change and that is quite important to the market. Every
bull market is accompanied by change in fundamentals, whether that is a change in
technology or in the growth outlook of an economy because of demographic change —
whatever that change is — that fundamental change is important otherwise it peters out
and proves to be a bear market rally. So you get these three things going together and I
think that is how a bull market gets created.
Q: You have studied bull markets, you have studied yearly analysis; in your opinion
what is it that lights the match?
Raamdeo Agrawal: The first fundamental thing is there should be enough pessimism to lay
the foundation for the bull market. The pessimism, which leads to irrationally low
valuations is the starting point of a bull market. For example in 2002-2003, after the
dotcom bust after two years of sustained bear market — almost third year of bear market
which is a history in itself — valuations were crazy. The whole market was available at
7-8 P/E multiple, Reliance was at 6-7 times P/E multiples and there were no takers for
Reliance. The market itself was at 1.5 times book. Pessimism was all over and there was
a belief that nothing could happen. Back then, I wished that out of the 40 stocks, two-
three must reach a new. And it was a dream — in the next 24 months, we saw half the
market was in a new high.
Q: How important is liquidity? Is liquidity the mother’s milk of a bull market?
Agrawal: Yes, definitely liquidity is a starting point because you need money to buy
stocks. Liquidity is very important, I have been ignoring liquidity as a propellant for the
markets to move but it is important. In 2008, we saw margins of safety to be negative at
the peak of the market but liquidity was huge, all over the world — a USD 1 billion
cheque was a small thing for inflow into India and again in January 2009, it was the other
way round. You couldn’t even get USD 10 million.
Q: GE also couldn't raise money.
Agrawal: Yes, GE couldn’t raise money and that too even for an ultra mega power
project (UMPP), you can't get USD 100 million credit.
Q: Liquidity itself cannot assure a bull market? That would be a bubble right?
Desai: Absolutely. It is a combination, you need all factors in place and fundamentals
tend to decide how long and how much the bull market will run. Liquidity provides that
fire to drive it. So at the start of the bull market, liquidity is important. Very few bull
markets start without good liquidity conditions. Liquidity tends to be a corollary to a bear
market, which is that once growth slows down, money supply does not shrink as much as
growth shrinks. So there is always that excess money stock in the market and that is how
central banks and government try to work around a recession.

Strong rally we are doing this in 2009, are we in a break in a bull market or has the
new bull market begun?
Agrawal: I would think it is a start of new bull market except that usually euphoric times
are at the end, this time it is starting with the euphoria.
Q: By definition that cannot be then: would it just be a strong bear market rally?
Agrawal: The depth of pessimism that I saw in 2008 tells me that nothing can be worse
than that. So for me that is a bull market, anything better than whatever I have seen
recently is bull market. I don’t have any specific definition of what is a bull market or
bear market.
Q: What is the leadership then in this bull market, in new bull market there must be
some leadership? What according to you is the leadership here?
Agrawal: I think strong domestic consumer companies are going to lead the pack. For
example, fast moving consumer goods (FMCG), two wheelers, banks dominating
consumer credit cycle or catering to even corporate credits domestically, funding
infrastructure, cement, domestic steel — we can see the earnings profile even in the
current year. They are going to lead the pack in terms of earnings growth.
Q: The market fell from 21,000 to 7,000 that was a bear market or a break?
Desai: It is something I struggle with. I am not so sure. If I look at the statistics, the last
18 weeks have produced a near 80% rise in the market. If you go back to all the previous
bull markets and see what they did in their first 18 weeks, the range of return is between
35% and 50%.
The 2003-2008 bull market produced 51% return in first 18 weeks. The market was
already in a raging bull run by the time we came to the end of the first four months. Not
dissimilar to this, except that this will produce even more returns which could time well
with the point that Mr Agrawal makes. The point of pessimism in October was so bad
that the swing up is probably going to be bigger than we had ever seen before because the
swing down was bigger than we ever got before which is that the previous bear market —
if we can call it one — was the steepest and the sharpest fall ever in India’s history.
Q: Mother of capitulations?
Desai: Exactly, so you got a mother of bull markets and the mother of bear markets and
maybe you are already in another bull market.
Q: Then you would expect the same leadership to go up?
Desai: The struggle I have is that if you apply the simple rules that we have learnt over
the years, growing up is that leadership changes. It has not seemingly changed in this new
bull environment — which is that the same sectors that did well in 2003-2008 and then
poorly in the bear market — are the ones that are leading the charge. So maybe that is a
transient phase in this bull market and maybe we go to new leadership over time but until
that happen, there will always be a little bit of doubt of whether we are in a new bull
market or whether this is just another bear market rally.
Q: There is some evidence of leadership coming in in housing finance companies this
time for example or in FMCG sector, would you say it is too early?
Desai: I think it is a tad too early, though I concur with Mr Agrawal and my theme is also
the same, which is consumer is king, which is I expect the next bull market to be driven
by India’s core fundamentals. We have a big demographic change coming through, we
have seen that come very well nicely into the electoral results of the last 18 months. I
think we will see it in the sector leadership that comes out in the next bull run as well, so
domestic consumption things like autos, media, even consumer goods…
Q: Is there abject pessimism over these sectors in India right now?
Desai: It was the case probably in October in some of them but not all of them. So I think
that is the struggle that we will always have. So we probably did not get to the low point.
But if you take consumer goods — consumer staples — there was pessimism for a long
period of five years. So we are coming out of that long bear run in these stocks for a long
time, these stocks have gone nowhere.
Q: If you are right, how much money should we make in these stocks, there is an X
factor in these stocks? In a bull market leadership: 100X, 50X is that the kind of
returns that people should hope for?
Desai: That is quite possible that some of these stocks give you these types of returns.
Q: Do you think bull markets always end badly?
Desai: Yes, because what happens is that at the peak of the bull market, people get so
euphoric, the multiples get so rich that inevitably it has a bad ending.
Q: Nature of beast?
Desai: Yes, that is absolutely the nature of the beast