Overleveraging of positions to participate in India?s largest IPO seems to have hit the high net worth individuals (HNI) big time. The Reliance Power initial public offer listed on Monday and by the time it closed the day at Rs 372.50, investors had lost around Rs 2,000 crore, an overall loss of 26%. However, for some of the HNIs, the loss could be as much as 37%.
?One can estimate that around 70-80% of HNIs had aimed at a break-even cost of Rs 590,? said a broker. The price of acquisition gets higher when the cost of leveraging, that is the additional interest cost, is added to the higher band of the issue price of Rs 450 per share. The opportunity of making a quick buck by betting large numbers on a Reliance stock was seen as a very lucrative one. ?A Reliance group company has never had a bad listing day, hence we thought that even by borrowing at a high cost, we could recover our investment,? said Nishit Shetty, a restaurateur-turned-speculator.
Add to this the huge run-up in stocks, especially of both Reliance groups added to the blind confidence. Like Shetty, many were in for a shock and were seen offloading their shares at various levels.
After all, the cost of borrowing will keep increasing and the sentiment in the market does not suggest a rise in prices .In fact, the share price might see some more volatility in the coming days.