Thanks swati for providing positive insight regarding coal india stock.I had bought 50 shares today only and got disheartened reading itsmemad's views.Though he had put the things that can happen, but then we should also stop investing thinking that the world will end in 2012 as predicted by INCA civilization.Once again thanks swati.:thumb:
Coal India | Some negative factors not discussed yet
- Thread starter JackPotter
- Start date
My Dear,
Dont know which "BHEL" you are talking about.
For the whole of 2007, BHEL never touched 900. It made a low of 1301.00
June 7 to November 7 it went directly to 2800 i.e 5600.
It made a low of 1075.00 in October 2008 and all of us know what happened to the stock market in October 2008. Almost every scrip had fallen 50%. You are giving recession data to prove your point.
Dont know which "BHEL" you are talking about.
For the whole of 2007, BHEL never touched 900. It made a low of 1301.00
June 7 to November 7 it went directly to 2800 i.e 5600.
It made a low of 1075.00 in October 2008 and all of us know what happened to the stock market in October 2008. Almost every scrip had fallen 50%. You are giving recession data to prove your point.
Maybe 1075. I was recalling it from memory.
I'm conveying that no stock is immune from the market movements. Hence, we have the option to wait a bit and catch the bus again if we didn't when the IPO was issued.
I'll give you the document of IPO performance research soon. Will have to dig for it. Going out right now.
I'm conveying that no stock is immune from the market movements. Hence, we have the option to wait a bit and catch the bus again if we didn't when the IPO was issued.
I'll give you the document of IPO performance research soon. Will have to dig for it. Going out right now.
I would like to ask you to verify your facts this time. I feel proud of my memory as I mentioned that it touched 900 something, which is true indeed.
BHEL made a low of 981 on 27th October, 2008.
Coming to the point, I've searched the documents for technical discussion of the issues with IPOs. The document, "Evaluating Value Weighting: Corporate Events and Market Timing" is from the finance professor, Owen Lamount of the University of Chicago. The document, "Pseudo Market Timing and the Long-Run Underperformance of IPOs" is from the finance professor, Paul Schultz of the University of Notre Dame.
Both of them have shown that the corporations choose to offer new stocks to public when the stock market is near a peak.
The third document, "IPOs in Emerging Markets: A Comparison of Brazil, India and China" is from couple of Brazilian professors. They have shown that the initial return is very high when the Indian IPOs get listed. However, the story changes when it comes to the long term performance of the Indian IPOs. Their returns are in the negative for long term (greater than 1 year investment). They have chosen two methods to evaluate the returns on the IPOs. The performance is dismal on both the methods.
One more fact they mentioned that many IPOs in India are underpriced when issued. IMO, this is done deliberately to "manufacture" immediate gains that would attract more attention to the stock after its listing and next offerings (IPOs).
Download from here
P.S.: I suggest readers to take quick glance on the documents. If it gets too technical, skip to the conclusion part.
BHEL made a low of 981 on 27th October, 2008.
Coming to the point, I've searched the documents for technical discussion of the issues with IPOs. The document, "Evaluating Value Weighting: Corporate Events and Market Timing" is from the finance professor, Owen Lamount of the University of Chicago. The document, "Pseudo Market Timing and the Long-Run Underperformance of IPOs" is from the finance professor, Paul Schultz of the University of Notre Dame.
Both of them have shown that the corporations choose to offer new stocks to public when the stock market is near a peak.
The third document, "IPOs in Emerging Markets: A Comparison of Brazil, India and China" is from couple of Brazilian professors. They have shown that the initial return is very high when the Indian IPOs get listed. However, the story changes when it comes to the long term performance of the Indian IPOs. Their returns are in the negative for long term (greater than 1 year investment). They have chosen two methods to evaluate the returns on the IPOs. The performance is dismal on both the methods.
One more fact they mentioned that many IPOs in India are underpriced when issued. IMO, this is done deliberately to "manufacture" immediate gains that would attract more attention to the stock after its listing and next offerings (IPOs).
Download from here
P.S.: I suggest readers to take quick glance on the documents. If it gets too technical, skip to the conclusion part.
Itsmemad,
While you are busy digging for documents about IPO performance... suggest you do some research on all the PSU IPOs that were offered and their subsequent perfomance.....
I have seen your comments on NHPC.... it's a very small IPO where they are only involved with Hydel Power.... so citing example of NHPC isn't fair in the context.... rest all of your comments are just hypothesis.... to support your belief that You would see 100 bucks on CIL.
It's is more in vein of trying to argue that driving is dangerous and walking is safer.... but one can get run over even while walking.....
Considering you have so many criterias for selecting a scrip....why not list out the ones that look attractive to you and where you think they will be in about a couple of years.
Happy & Safer Investing
SavantGarde
While you are busy digging for documents about IPO performance... suggest you do some research on all the PSU IPOs that were offered and their subsequent perfomance.....
I have seen your comments on NHPC.... it's a very small IPO where they are only involved with Hydel Power.... so citing example of NHPC isn't fair in the context.... rest all of your comments are just hypothesis.... to support your belief that You would see 100 bucks on CIL.
It's is more in vein of trying to argue that driving is dangerous and walking is safer.... but one can get run over even while walking.....
Considering you have so many criterias for selecting a scrip....why not list out the ones that look attractive to you and where you think they will be in about a couple of years.
Happy & Safer Investing
SavantGarde
I will certainly invest in a scrip which has stood through the negative times in their business operations. Hence, I'll give atleast one-two years to test the Coal India stock whether it stands through the tough (hypothetical in your words) times mentioned in the OP. Maybe will get a better deal then. If not there are many which you've suggested in this forum for long term investment. Also, most of them have stood through the rainy days.
I said "For the whole of 2007, BHEL never touched 900. It made a low of 1301.00 "
I have not looked out at any figures after October 15th I think because the markets had crashed heavily and almost all scrips had fallen quite heavily.
If it did reach a low of 900 in 2007, then please correct me. Anyways, how does it matter if BHEL touched a low of 900 when it already achieved the target you mentioned(5000) within less 6 months. Just to prove your point you are giving out prices during the market crash. According to your theory, people won't sell at the target but they will sell at the low.
You said it yourself. If you are saying you might get Coal India at a better price after a market crash then in such a scenario almost all the scrips will be available at the cheaper price than the current rates. Does that mean we have to wait till a market crash to enter into all these scrips? There is no guarantee that such a scenario will occur. If you are talking about the extra problems you mentioned in your first post, then I already gave you similar problems which might affect even top IT companies.
Also regarding your IPO files, they have researched all IPOs. As SG suggested, please give me a report of public issues and their peformance. There are small IPOs which get easily manipulated by the company owners. To put my point across I'll give you a few stats of my own
Aster Sillicates 50 Crores IPO
Makes a High of 246.70 on listing day.
Price Now: 36.50
Texmo Pipes 45 Crores IPO
Makes a high of 159.40
Price now: 46.45
Now, you take these 2 and add to it Coal India and then come out with a report on IPO performance of 2010 then you will surely get average negative returns over a year. You can't compare a 15000 Crores IPO with these companies who have no fundamentals.
I have not looked out at any figures after October 15th I think because the markets had crashed heavily and almost all scrips had fallen quite heavily.
If it did reach a low of 900 in 2007, then please correct me. Anyways, how does it matter if BHEL touched a low of 900 when it already achieved the target you mentioned(5000) within less 6 months. Just to prove your point you are giving out prices during the market crash. According to your theory, people won't sell at the target but they will sell at the low.
You said it yourself. If you are saying you might get Coal India at a better price after a market crash then in such a scenario almost all the scrips will be available at the cheaper price than the current rates. Does that mean we have to wait till a market crash to enter into all these scrips? There is no guarantee that such a scenario will occur. If you are talking about the extra problems you mentioned in your first post, then I already gave you similar problems which might affect even top IT companies.
Also regarding your IPO files, they have researched all IPOs. As SG suggested, please give me a report of public issues and their peformance. There are small IPOs which get easily manipulated by the company owners. To put my point across I'll give you a few stats of my own
Aster Sillicates 50 Crores IPO
Makes a High of 246.70 on listing day.
Price Now: 36.50
Texmo Pipes 45 Crores IPO
Makes a high of 159.40
Price now: 46.45
Now, you take these 2 and add to it Coal India and then come out with a report on IPO performance of 2010 then you will surely get average negative returns over a year. You can't compare a 15000 Crores IPO with these companies who have no fundamentals.
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Okay, I'm combining the general view of higher returns and my view of purchasing this stock after some time at a lower price than now. Please note that these calculations are not mine, they are from a well known financial investment book. Also, I've tried to take both the views simultaneously, bullish & bearish. So, here we go..
Bullish Assumption: Assuming that we think this stock can give an average return on investment of 2X % per year, even if the market only grows X % on an average annually for next 15 years.
Bearish Assumption: Unfortunately, we are so enthusiastic that we pay too high a price now, however, the stock loses 50 % of its value in the first year.
Result: In that case, even if the Coal India's stock then generates double the market's return, it will take us more than 16 years to overtake the market.
Why?
Simply because we paid too much, and lost too much, at the outset.
Conclusion: Losing some money is an inevitable part of investing, and there's nothing we can do to prevent it. However, we must take responsibility for ensuring that we never lose most or all of our money. By refusing to pay too much for an investment, we minimize the chances that our wealth will ever disappear or suddenly be destroyed.
Despite the above Risks , I think that Coal India is one of the best quality stocks to come out in India’s Primary Markets. However, investors should be wary of the risks which will be glossed over by the mainstream media and brokerages. As with every investment however safe it might look, there are risks. This does not mean that investors should be fearful of every investment. It is by being aware of the risks, that prudent risk management can be done which is essential to successful investing.
-----------------------------
Since we Indians are so much positive on the PSUs, I'll give out couple of more reasons why I think that it is risky to invest in this stock at present levels. Note this does not make me negative on the stock on which I am very positively biased. It is just to give investors the other side of the debate which I think general analysis will lack.
Dangers of Being Government Owned– Government owned Fossil Fuel Companies like IOC, ONGC, BPCL have a long history of subsidies and losses. The profits and losses of these companies despite being listed on the public markets are subject to the whims and fancies of the government.
Coal India prices its products significantly below international market costs which has little justification. Though the Company manages to get 15% Net Margins, it could change drastically depending on the fickle nature of the Party in Power. The Government is planning a new legislation which will lead to giving of 20% of profits of mining companies to local communities. CIL being government owned will definitely come under the ambit of this proposed law leading to a potential decrease in profits.
Growth Rate is not Fantastic by Any Means– CIL has managed a decent growth of around 10% which it will find difficult to accelerate despite huge demand due to its not so competent management and organization. The Company’s structure won’t change radically with public listing overnight. So while CIL could be a good safe investment, it might not be a multi-bagger in the near future.
Global Carbon Tax and Climate Change Legislation– Coal is the Dirtiest form of Energy and its cheapness is due to the fact that implicit costs on the society are not added to Coal. It is already well known that Coal has huge pollution and health costs. Mercury poisoning, Degradation of Land and Ecology are some of the other negative environmental effects of Coal Mining and Usage. Its no wonder that Coal India’s Advertisements show Afforestation Measures to try and bolster its Green Credentials. But make no mistake CIL is the biggest polluter in India. A Global Carbon Tax or something to that effect might radically change the structure of the Coal Industry quite negatively.
Bullish Assumption: Assuming that we think this stock can give an average return on investment of 2X % per year, even if the market only grows X % on an average annually for next 15 years.
Bearish Assumption: Unfortunately, we are so enthusiastic that we pay too high a price now, however, the stock loses 50 % of its value in the first year.
Result: In that case, even if the Coal India's stock then generates double the market's return, it will take us more than 16 years to overtake the market.
Why?
Simply because we paid too much, and lost too much, at the outset.
Conclusion: Losing some money is an inevitable part of investing, and there's nothing we can do to prevent it. However, we must take responsibility for ensuring that we never lose most or all of our money. By refusing to pay too much for an investment, we minimize the chances that our wealth will ever disappear or suddenly be destroyed.
Despite the above Risks , I think that Coal India is one of the best quality stocks to come out in India’s Primary Markets. However, investors should be wary of the risks which will be glossed over by the mainstream media and brokerages. As with every investment however safe it might look, there are risks. This does not mean that investors should be fearful of every investment. It is by being aware of the risks, that prudent risk management can be done which is essential to successful investing.
-----------------------------
Since we Indians are so much positive on the PSUs, I'll give out couple of more reasons why I think that it is risky to invest in this stock at present levels. Note this does not make me negative on the stock on which I am very positively biased. It is just to give investors the other side of the debate which I think general analysis will lack.
Dangers of Being Government Owned– Government owned Fossil Fuel Companies like IOC, ONGC, BPCL have a long history of subsidies and losses. The profits and losses of these companies despite being listed on the public markets are subject to the whims and fancies of the government.
Coal India prices its products significantly below international market costs which has little justification. Though the Company manages to get 15% Net Margins, it could change drastically depending on the fickle nature of the Party in Power. The Government is planning a new legislation which will lead to giving of 20% of profits of mining companies to local communities. CIL being government owned will definitely come under the ambit of this proposed law leading to a potential decrease in profits.
Growth Rate is not Fantastic by Any Means– CIL has managed a decent growth of around 10% which it will find difficult to accelerate despite huge demand due to its not so competent management and organization. The Company’s structure won’t change radically with public listing overnight. So while CIL could be a good safe investment, it might not be a multi-bagger in the near future.
Global Carbon Tax and Climate Change Legislation– Coal is the Dirtiest form of Energy and its cheapness is due to the fact that implicit costs on the society are not added to Coal. It is already well known that Coal has huge pollution and health costs. Mercury poisoning, Degradation of Land and Ecology are some of the other negative environmental effects of Coal Mining and Usage. Its no wonder that Coal India’s Advertisements show Afforestation Measures to try and bolster its Green Credentials. But make no mistake CIL is the biggest polluter in India. A Global Carbon Tax or something to that effect might radically change the structure of the Coal Industry quite negatively.
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