When you see news items like IPO subscribed 40 times, or 200 times do you wonder how? Or when L&T finance debentures at 8.5% p.a. gets subscribed, do you wonder why?

The answer is very simple. Merchant bankers are a nice small clique who also run PMS schemes. So when the ‘Investment Bank’ goes to get a mandate they flaunt their strength in:

a. The retail brokerage network that they have built

b. The HNI clients that they cater to and

c. The PMS services that they run.

Now all these activities actually become some kind of a backward integration for their brokerage business. Thus these clients are told – here is L&T a great company and at an attractive rate of 8.5%. Gilt is not far away at 8% – and for senior citizens there is the senior citizen yojana at 9%. Of course their own executives were busy filling up forms of Mahindra Finance which was at 9% not very long ago.

So if your PMS provider runs a full fledged business in other finance areas, you are likely to buy some of those lemons or violently churn your portfolio. If you must go to a portfolio management service what you should be looking for is:

a non broking PMS provider – whose only income is PMS fees. There are 3-4 such providers in Mumbai and you would be better off with them. One name which immediately comes to mind is Chetan Parekh of Jeetay Investments. However like all sensible people he does not offer ‘PMS’ at Rs 5 lakhs. Parag Parikh is also a PMS provider – but he perhaps runs some brokerage business as well.

In fact the financial planning business does not conflict with thePMS business. However as a planner it makes sense to stick to Index etf as a recommendation instead of pretending tobe able to find the next WIPRO or the next INFOSYS.

Let us leave that job to Vallabh Bhansali of Enam or Rakesh Jhunjhunwala of RARE to do it. Amen.

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  1. Good one Subra !!
    really an eye opener as to how these issues manage to get oversubscribed.
    Burnt my hands with Rpower .. had invested as the oversubscription number was too high for it ..and after looking into past IPO openings thought must be a gr8 stock to own..I now focus only on the fundamentals of the IPO and not get carried away by the subscription numbers 🙂

  2. Hi Subra,
    This is absolutely right. I often wonder how come QIB gets oversubscribed and not Retail or HNI portin of some IPOs.
    One very interesting thing I have observed on the business channels. Every stock expert after vomiting for 30 minutes on what to buy and xyz is a good co. Charts are excellent blah blah blah and in disclosure ” I dont have any positions in the stocks that are discussed” I have been tracking one such guy for last 4 months and he does not hold any of the stocks as per him, however he has discussed entire BSE 200 in the meantime. God knows what they invest in and why they talk about stocks when they do not invest at all in them. God save those who follow him.

  3. I knew it..I knew it.

    Recent IPO Talwalkars was too small ..easy for merchant banker to be able to guarantee a high opening..and we could see whooping ~28% returns the same day.

    I tested my theory and made some money 🙂

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