Too many Expectations = DISSAPPOINTMENT

"Disappointment is a sort of bankruptcy -- the bankruptcy of a soul that expends too much in hope and expectation. " The quote by Eric Hoffer clearly sumps up the recent disappointment of Indian investors after the larger than life IPOs.

The Valuations at which the companies like NHPC and Adani were offered to the investors were completely sky rocketing, still the way these issues were over subscribed was completely amusing. The power sector story was sold as if the GOD himself is a merchant banker and when he is underwriting an issue, d investors are bound to gain since god would always want to do charity.

But the reality is that the promoters have squeezed all the juice out of the IPO and what was left for the investors on the table was just an empty pot. Selling an hydel power generating company at 36 times its trailing earnings is absolutely crazy. The kind of risks associated with an hydel power generating company were never discussed even in media before the issue. Because of the current drought like scenario most of the hydel power plants in the country are operating at around 50% of their capacity and the chances are that some or most of them could also be shut if the situation continues. There are risks of landslides or similar natural disasters in the area where these companies have build plants.

Adani Power's valuation was justified that it would generate around 9000+ MW of power by 2012 and so its really a cheap one. The same story was weaved around Reliance Power some 2 years ago with numbers like 33000+ MW and today the company after 2 years is not generating even a single MW and the stock has almost more than halved from its issue price. Even if one plant of Adani does not reaches closure as per the stated time or does not get the fuel supply, the kind of interest cost the company has to bear is way too much.

Thus, I believe that people specially retailers who have applied for these IPOs can seriously exit before any sort of damage happens. These stocks, based on valuations I believe will be available at lower levels in near terms and then one should enter them for a long term investment horizon. Probably 70-75 for Adani and around 25 for NHPC makes much more sense rather than holding them currently.

But one more thing that amuses me is that one buys in an IPO with good long term investment rather than with an intent of selling on listing and so the disappointment is inevitable since those crazy days of 2007 are no more there.

I believe the forthcoming Oil India IPO will also see the same fate and one should avoid that because even at the lower end of the price band company is expensive than ONGC.

Moreover the markets are likely to remain on a positive note before the Oil India Issue closes since, this will help company issue the stock at the upper end of the stock band.

Happy Investing