Friday, February 12, 2010

Whats the hurry?

Update on 1st May 2012: To see glimpses of my forthcoming book Decoding Communications, please visit http://decodingcommunications.blogspot.in/ 

You cannot rush to gain Trust - especially when one is soliciting investment from financially and emotionally drained investors in the wake of several market scams, misdeeds and misfortunes.

The financial markets have not even started showing full signs of stability (let alone recovery) and there's a rush to the stock markets to sweep funds in. To squeeze the markets for a quick milching even before they even show full signs recovery is akin to working a recovering workhorse, bound to puncture the slowly building strength and confidence.

Why is now NOT not a good time to seek funds from retail investors? Well, the most primary reason is that the IPO is only ONE milestone in a long cororate journey and should, at best, be considered as an important direction-setter which determines how the corporate should behave in the future. Once the company solicits newer owners, it naturally needs to be accountable to and transparent with them. If they cant do it right even at the start, chances are they will not be in the long run too. Think of an IPO investement decision akin to starting a business with your neighbour who you dont know too well. Surely in the latter, you dont give your money to anyone who comes asking.

Investors seek long term foresight in partnerships (though they may stay invested for a shorter duration). If it seems to be too opportunistic - too close on the heels of the god-like Sensex touching indices that make 'marketable' sense to the merchant bankers, it is bound to leave a lasting negative impression on the scrip. The last thing a company going public needs is to be seen as a opportunistic with investor's money.

While some will invest in any type of a primary market, it is also true that a majority will not, and therefore the danger of IPO shortfall is always looms large. This 'shortfall' is unfortunately not very visible to normal retail investors because usually 'friends & family' pitch in to rescue the IPO by investing huge amounts on the last day (that usually helps 'oversubscribe' the issue), helping you get rid of your post-buying depression, and immediate off-loading.

Though the primary market still manipulates the investor sentiment considerably (by not being transparent enough), the secondary market is not quite the same and assumes that all have the same information at all times, other than the advantaged insiders (the stock market is a classic example of the fact that there will be a buyer/seller at every price).

Unfortunately, investors need to add a lot of salt before consuming the 'advise' of IPO merchant bankers, PR and advertising agencies. All these agencies being interested parties and beneficiaries, naturally have a strong motive behind recommending the issue. Of course there must be stricter rules for agencies on the communications issued (with stricter punishments for publishing wrong, misleading information), but the primary culpability must remain with the IPO-company, for if not, it is not difficult to be tempted in a market which uses the primary fuel of greed.

Responsible companies (and their league of advisors) would do well to give approapriate advise to companies to IPO at the right time, at the right price and with the right messages. Regrettably those seeking money are of a mypopic view, ready to rake any amount from any source unabashedly.

They think the market has a short memory. But contrary to what they think, the investor who loses money, etches the pain of loss and forms deep unchanging memories about the company which caused it. Perhaps, the fear of a lasting bad image is good enough reason for company going IPO to keep a check on its greed-sentiment and do the right thing.


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