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Buying Coal India on listing day? Do so at your own risk

The much-hyped public issue of Coal India will debut on the bourses tomorrow. Investors wanting to get in on the action on listing have history against them

The lucky few who have been allotted shares in the spectacle that is Coal India's initial public offer (IPO), stand to make a windfall come the time of listing tomorrow. The overwhelming consensus among market experts and analysts is that of a smart Rs40-Rs60 bump over the issue price of Rs245 when the stock debuts on the bourses early morning. Many investors who have been left out will be lining up to get in on some of the action. A recent media report says that employees of Coal India, who could not get allotment in the stock, wish to buy on listing day. This was after trade unions were protesting against the share sale and had advised workers to stay away from the public offer.

However, consider buying the coal behemoth's shares after listing at your own peril. History has not been kind to investors hopping on to a stock post-listing.

Moneylife ran a study covering the performance of IPOs that have come out over the past three years. We found that investors wanting to get in at the time of listing of the stock and holding on to it over the long term are more likely to head towards disaster. Out of the 107 public issues over the past three years, as many as 65 are now trading below their listed price! This means that investors have only a 39% chance of getting something back on their investment in this scenario.

Looking deeper, we observed that 30 stocks are now trading at less than a third of their listing price. Worst still, had you invested in all of these 107 companies at the time of listing, you would now be sitting on a paltry 4% average return. Of course, this figure would have been even lower but for a few stocks that might have been manipulated, generating higher returns.

Apart from a handful of stocks that have exhibited robust growth even after listing, others have mostly turned sour post-listing. Consider the example of another public sector behemoth like Coal India. National Hydro Power Corporation (NHPC) was listed on the bourses on 1st September 2009. The stock price has collapsed by 25% over its listing price of Rs42. NMDC has fared even worse, having witnessed a steep fall of 37% post listing of its stock in March this year. Power Grid Corporation has managed to post a measly 12% gain since listing over three years ago on 5 October 2007. 

What is the reason behind such pathetic returns post listing? Listing day gains - the price pops that usually occur at the time of listing of the stocks - effectively leave no room for the stocks to appreciate further. As mentioned earlier, the stocks take a nosedive after making their debut on the bourses. Power Grid had jumped as high as 73% over its issue price on listing, while NMDC had soared 46% on its opening. NHPC too had witnessed a bump of 17% over its issue price at the time of listing.

If the Coal India debut plays out as anticipated, investors should think twice before entering the stock on listing day tomorrow. They could instead take a chance a few weeks later, when the hype and euphoria around the issue wanes a bit. 

User

COMMENTS

SUBHASH MEHTA

6 years ago

Buying Coal India? Do it at your own risk. Moneylife Team had done excellent by giving details of previous failed PSU IPOs. I agree with their contention. But I had added a new point in this debate. I'm of the view that coal will lost its utility after ten years and I am not seeing any growth in this Sector. During last 40 years, Coal had been completely vanished from Household, Hotels, Dhabas, sweet making, tea-stall etc. Later big consumers like Shipping and Railways had shifted to alternative modes of energy. Further several industrial units had been shifted to Furnace Oil, electric furnaces and other modes of energy and the remaining will likely to follow suit. Present Big consumers of Coal are Thermal Power Plant. I think that their fate will also be like railways, shipping etc. Several other alternative sources for Power production eg. Hydel, Wind, Solar and Nuclear energy are being explored, which are cheaper in compared to Coal. Nuclear Deal had already been signed, thus paved way for Atomic Power Stations. Where the Coal will go? Further Coal India had admitted that they had stocks for 15 years. What will they do after that if some demand persist. They issued a statement that they will purchase Coal Mines in other Countries. Will the consumer afford additional cost of import? My mind says that such time will not come and Coal will be a thing of history in near future. Am I right? please suggest......

ravindra

6 years ago

For Thermal power ,steel industries.Coal is a cheaper option for generation of steam for running turbine & various auxiliary machinery..Coal is also readily available,also can store easily.For Storing gas infrastructure is required also having risk.Industry always go for cheap option.
In Japan few gas company trades ships to Australia with Coal burning Boilers for generating steam for running power plant.
Though exhaust generated from coal burning is big pollutant.But in our country it is easily manageable.
So we can conclude that there is no future for Coal.

REPLY

ravindra

In Reply to ravindra 6 years ago

Sorry,
Please read

So we cannot conclude that there is no future for coal.

SUBHASH MEHTA

In Reply to ravindra 6 years ago

Not agreed. Coal is not a cheaper option. Transportation cost is high and it require large space for storage. We all know that Atomic Energy is coming sooner or later. Power generation by Thermal Plants will be thing of history in coming ten years, as steam engines are now a history in railways & shipping. Most steel industry had already shifted from coal to Furnace Oil &Electric Furnaces. So I don,t think of any growth in Coal Sector. Where the Coal will utilize after establishment of Atomic Power Plants?????, when plenty of power will available to industry presently using coal.

sunil shyamsukha

6 years ago

very well said, I totally agree with the author !!!

Heena

6 years ago

I sold 547 shares at Rs 338/- on listing day. Thanks for your advice.

REPLY

SUBHASH MEHTA

In Reply to Heena 6 years ago

Good. U may now invest the proceed in Cairn India and Sesa Goa, both available at around Rs.330/- each and quite cheap, thanx to Mr. Jairam Romesh and Mr. Murli Deora for creating some hurdles for Vadantas. I am of the view that Vedantas are capable enough to overcome out of such hurdles. Vendantas are not fool who had made deal for Cairn for Rs.405/- per share and acquired Sesa Goa at much higher prices than the prevailing share prices. The price of Sesa Goa was shoot up more than their open offer price and investors got much higher returns. Similarly Cairn's open offer price of Rs.355/- is also much attractive and there is possiblity that if SEBI will take strict view, then open offer price may be Rs.405/- per share. However long term outlook of these share are good and may be more remunerative. Check the returns given by Vedantas in their other ventures eg. Hindustan Zinc, Sterlite Industries, Sterlite Technologies etc., which gave very higher returns to investors so far.

SUBHASH MEHTA

6 years ago

I'm not bullish on coal, so neither applied in IPO nor will purchase after listing. In my view coal will have no utility in near future. Being senior citizen, I have seen the days when coal was used in every household, sweetmakers, railways, shipping and in industry. Now it is being replaced by other sources of energy. Major Buyers of coal are Thermal Power Plants and some industries now, which will definitely shifted to gas, electricity and atomic power within next ten days.

REPLY

Debashis Basu

In Reply to SUBHASH MEHTA 6 years ago

thanks mr mehta for your insight

SUBHASH MEHTA

In Reply to Debashis Basu 6 years ago

Last word of my comments may be read as 'years' instead of 'days'. I'm of the view that utility of coal will be reduced significantly. Now I hardly seen any coal depot in my city. Even in small scale and cottage industries all requirements are shifted to other sources eg. Furnace Oil, Electricity etc. Even a small tea stall owner is not using coal now. Power sector which is at present is major consumer, will not afford coal due to its higher price and transportation cost, will be forced to shift towards gas and Nuclear Energy, as and when available. So I'm of the view that one should not keep this stock as long term investment. Don't go towards the media hype and other so called experts and analysis and think twice (as suggested by the author of this article) before investing your hard earned money.

nagesh kini

6 years ago

as a longterm investor, basically i'm not into market ups and down as long as i get good dividends and bonus and no fudging as in the pvt. sector. this is fom my personal experience as a cag empannel auditor having audited psus from kashmir to kanya kumari.

David N

6 years ago

Thanks for the fine report which gives how badly previous IPOs have fared compared to listing day gains. I would have jumped and bought 100 shares tomorrow (4th Nov) if not for your report! Now I will wait for few days to pass...

praveen kumar

6 years ago

What could be the expected price of a share is predicted on initial listing it means by 20 min of market

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