I have been observing the NSE trend and especially in the run up to Kenya Re IPO, with a hawkish intent to pounce on counters encroaching to the red. I am have however reluctantly coming to the conclusion that the market might just shrug it off; like the IPO never happened. The IPO was announced in the last week of June in which, the NSE Index closed at 5146. In the last 3 weeks the Index has remained within the same range and has this week closed at 5137.
Within this time some of the counters which have shown signs of depression which can be explained away include,
• Equity; the negative allegations and credibility of its CEO made on the floor of parliament have caused it to fall from 146 to 133 within this time.
• BAT; this has dropped from 190 to 178 within this period. The profit warning the management issued to its share holders as well as the recent banning of smoking in major towns in the country could be the cause of this drop.
• HFCK; the interest this stock had generated on news of Equity buying major stakes in it seems to cooled down and has therefore oscillated between 35 and 39 in the same time span. The negatives on Equity could also have affected it.
Within the same period penny stocks which were expected to shed off as a result of investors dumping them in readiness to KenyaRe have defied all odds and have instead risen, include
• KCB
• Express
• Kengen
• Mumias
• CMC
We all know from the recent IPO’s since Kengen, that this IPO will be oversubscribed at a minimum of 300%. Why is it that this IPO is not affecting the bourse? Logically if investors were to sell to participate in the IPO, they should have done so in the preceding three weeks to the start of the IPO. Therefore I do not foresee a depression at the bourse whose cause can be attributed to the KenyaRe IPO. So how can we then explain the obvious over subscription which will occur?
• Have the Kenyan investors become so liquid that they will participate in the IPO’s without necessarily dumping some of what they already have?
• Are there so many investors entering into the game such that the net sum effect is nil?
• Could it be due to intense participation from the Diaspora.
If this IPO is not causing any ripple at the NSE, are we saying that even the Safaricom one will not have any effect?
These issues shall need serious consideration if proper investment strategies are to be formulated.
Jimmy
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8 comments:
jimmy: Nice analysis! In my opinion i think the reasons why the Kenya Re IPO is not causing any effect in the market are:
- the number of shares on offer are so little. just 240 million of which more than 50% is taken by QII's and other industry players
- Generally IPO's usually form a good basis for new investors to come into the market. i was taking to my friend, who is an investment agent, and he told me he openned 200 new CDS accounts on Thursday.
- the QII's are not speculative individuals that sell their portfolios to buy into an IPO.
- also the negative publicity that Kenya Re has been getting has made many investors to trade carefully.
i am not sure about the diaspora and the liquidity of kenyans, but for sure there are many new investors entering the market. the safaricom IPO will have a massive effect on the market. Track it as you have done here and you will see counters going down after they announce the IPO dates.
Ka-investor, your comments are always appreciated. At least we concur on one fact that more investors are getting on board. With increased numbers of investors trading at the bourse can only get more interesting.
Jimmy-as well as ka-I reasons, many are also forgetting that given alot of these IPOs have been anticipated for along time; Kenyans are saving up for them i.e.reducing the need to dispose off. I am betting that Safaricon won't have as adverse an impact as many are thinking.
Ka-Investor, could be the new accounts being opened not necessarirly be due to new investors but also chaps wishing to spread their allocations for the paltry amounts that will be dished?
MainaT, thanks for your opinion but don't you think KenyaRe's 2.28B IPO will pale compared to Safaricom's massive 35B?
My opinion on Safaricon is probably in the minority, but I think there are vested interests in ensuring that Safaricon doesn't cause a)liquidity crunch in the rest of the banking system and b)a fall in b.a.u counters such that investors go into the election complaining about delayed refunds, falls in NSe counters et al. Don't forget there is cross-listing option...
MainT,I think being an election year very delicate balancing will need to done on the safaricom IPO. Cross listing being an option, but remember the political noise this will generate about govt selling a gem to foreigners. A vibrant NSE is a definite plus to govt succeses in their campaign, so allowing it to get depressed counters this. Lets wait and see.
@jk: i would like to assume that all those 200 a/c's are for new investors. opening new a/c's to increase one's allocation is not a worth while course. i think its a speculative move. not only will you waste hours chasing after small refund cheques that cost more than the refund but also coming to think of it you most probably just get a little more than some one with one account. for a serious investor waiting to buy them on the market floor will be cheaper and reasonable.
@mainat: i agree with you that kenyans have been saving for this over due IPO's. but no matter how much they save safaricom will overwhelm them. i surport the cross listing idea.
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