NHPC?S IPO was a success. Oil India is the next PSU in the IPO queue. A dozen PSUs are getting ready apparently. After five years of ghostly silence on selling PSU shares, all this is welcome. This is also about the only reformist activity from UPA-II. It would have been awfully silly for the government to not have taken advantage of what is widely being considered a good time to hit the primary market. The Adani Power IPO was oversubscribed 20 times. India is currently ranked as the sixth most active market for IPOs, accounting for around 3% of global IPO volume. But, here is a question: where is the retail investor? In the NHPC and Adani Power IPOs, retail investors subscribed 3 and 2.2 times more, respectively. Contrast that with the big boys. Qualified institutional buyers oversubscribed by 29 and 39 times, respectively. When the market has rallied by over 75% since the lows of March, why isn?t the retail investor rushing in? It could be that the small guy is sending a message that needs to be received and understood.
Look at current valuations. To talk about a fair range of valuations is always tricky because ?fair? is a tricky concept in market pricing. But it is true that valuation of many companies is above the figures for long-term average. Basically, unless earnings growth picks up, current valuations or dearer valuations will look like a bit too much of a good thing for the aam investor. Price-to-earnings multiples of Sensex companies are touching 20?a figure that may understandably cause a frown for the cautious. Many retail investors are using high market valuations as an exit point. Much of the money is finding its way to bank deposits, which is creating a problem for banks. Credit is not priced cheaply enough for all this money to find lenders. As we have argued in these columns before, if there?s a bubble nothing much can or should be done about it. The interesting thing is that the retail investor?s verdict seems to nicely tell the difference between India as an attractive investment destination for fund managers and India?s economic recovery gaining solid footing.
