| Topic : Investment Outlook of 2009 Indian Equity Market |
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Investment Hub
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Source : http://economictimes.indiatimes.com
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1 comments
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last activity : 07 06 2010 20:18:04 +0000
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An analysis of 52 listed IPO stocks which were IPO graded after it became mandatory in May 2007, shows that the stock price volatility of a company is inversely correlated to the IPO grade assigned to it, said Crisil Equities.
IPO grading represents an independent opinion from an agency that is not connected with the placement of the issue.
Volatility relative to the IPO issue price was determined by dividing the difference between a stock's all-time high price and all-time low price by the IPO issue price.
Companies with a lower IPO grade of 1/5 (indicating poor fundamentals relative to other listed securities in India) showed far greater share price volatility than the companies with a higher IPO grade of 4/5 (indicating 'above average' fundamentals).
None of the IPO grade 5/5 companies such as Acme Telepower and Multi-Commodity Exchange are currently listed on the bourses, Crisil pointed out. For assessing volatility based on an absolute price movement, Crisil used the ratio of the company's all-time high price to all-time low price.
For instance, in the case of Nu Tek Ltd (Crisil IPO Grade 3/5), whose IPO issue price was Rs 192 per share, got listed on August 27, 2008 at Rs 195 and closed at Rs 199 on the date of listing.
The company's share price then touched its all-time high of Rs 207 on September 2, 2008 and a life low of Rs 24 on March 12, 2009. On absolute parameters, the stock's high price was 8.5 times than its low price.
In most cases, the absolute price movement is the highest — 11.7 times in case of companies with lowest IPO grade of 1/5 while it is the least for companies with better IPO grades of 4/5 — 4.6 times. Companies that were assigned IPO grade of 2/5 and 3/5 depicted similar volatility trends of 6.1 and 6.4 times, respectively.
The analysis by Crisil Equities , which graded around 30 companies, covered firms graded by all the rating agencies between May 2007 and August 2009.
So what are your views on this, how far are these ratings do good for investors? Can we believe such ratings? Or should we do our own research in this regard...do give your views regarding this....
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