IRCTC: An IPO and the Retail Investors of India
It was an exciting month for the Indian investors. IPOs come and go but rarely does an IPO send a buzz so profound throughout the nation. I am of course talking about the Initial Public Offering of Indian Railways Catering and Tourism Corporation (IRCTC).
We are all familiar with this company and what it does, primarily because no one else does what it does! If I wish to make a rail reservation online, there is only one portal. In fact, even other portals, like PayTM and MakeMyTrip just allow train selection and availability information by themselves, for the actual booking we have to log into IRCTC. So what happened when this monopoly decided to transfer part of its stake to the general public…it became one of the most oversubscribed IPOs listed in recent times. Several investors placed their first ever bid on an IPO with this company. Many, however, were not ready to face the disappointment of not being allotted even a single lot! You see, IPOs which get oversubscribed get allotted by complete randomization – regardless of how large or how small bid you placed. And so, even as all those who got allotted even one lot of 40 shares are celebrating the listing of the shares at over 100% premium (double the buying price), there are those who blocked capital from their accounts in hopes of getting in on the action and are now helpless. Does this happen often? Well, yes and no. Just few years back D-Mart came with its IPO and stirred up the markets, its shares currently are soaring more than 6 times their initial price. Last fiscal year Apollo Micro Systems were oversubscribed by a factor of 248 times, and yet today they are running less than half of their IPO price. So, like everything in the stock markets, even IPOs are random roller coasters. It takes a special set of knowledge and analytical skills to foresee where the market will go…and even so, it is like weather forecasts – one can be spot on, or even miles away from the reality. Getting back to IRCTC – majority of the retail investors are going to book their 2x profits today and exit. Few would hold their stocks close to heart for anywhere between a few days to a few years. What will happen then is anybody’s guess, but today: IPOs like this are required to invite people to invest into the markets in the slow economy. Most people think of Stock markets as a gamble. It is, and it isn’t. It is a calculated risk: money is not made from markets going up or down, rather from a deep understanding of the underlying sentiment and knowledge of the history. The whole point of beginning investing in the stock market is to invest in businesses you know and understand. It means owning a minuscule part of a business that may be worth thousands of crores. When that business proliferates, you get a part in the profits, when it doesn’t your stakes get devalued. Not necessarily is one’s gain in stock market another person’s loss. It is more complicated and more dynamic than that. When you sell IRCTC stocks today at ₹683 and book ₹343 profit per share, it does not mean that someone has lost ₹343. The other guy who bought those shares from you has not made any loss or profit from that stock. Maybe tomorrow, that same guy who gave you a premium of ₹343 on this share will gain ₹100 on his investment when the stock rises to ₹783…may be in a month or in 5 years. And yes, he may have to suffer a loss if he is forced to sell the shares at a lower price than what he bought them for; that is the bargain…that is the risk.