The bookbuilding route allows the companies to raise huge funds for their mega projects. But the moot question remains, whether it makes sense to give such high valuations to these projects having very long gestation periods. Infact subscription to these IPO's depends upon the liquidity in the market. A case in point is the huge oversubscription to Relince Power IPO, whreas the EMAAR-MGF issue is struggling to get subscribed. A large number of these issues do not merit such high discounting based on fundamental analysis.
What should retail investors do with these issues. Based on shear fundamentals it is advisable to switch to other fundamentally strong scrips which are quoting at reasonable valuations. A few switch options that can be beneficial in the long run:
1. RELIANCE POWER Vs. NTPC: If RPower lists above Rs.600, quit and buy NTPC around Rs.200.
2. FUTURE CAPITAL Vs. SBI/ ICICI: Recently listed share of future Capital is quoting at around Rs.1100, switch to blue chips like SBI or ICICI Bank.
3. EMAAR-MGF Vs. PARSVNATH: Rather than appplying for Emaar-MGF issue even at the lower band of Rs.540 buy double the number of Parsvnath shares at Rs.270. Parsvanath has a earning visibility and past performance, whereas, Emaar-MGF has yet to prove its track record.
These are only a few examples, and through this strategy you will be reaping huge profits in the future.
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