This post might be coming in a little late (today is the last date for the IPO). Better late than never, as they say.
Anyway, I am not going to analyse the MCX IPO in depth. This article is pretty much the best I have read so far on the IPO issue.
The purpose of this post is to evaluate whether to invest in this IPO for listing gains on an expected value framework (and share a re-usable excel sheet that can be used for further IPO issues) which has not been covered anywhere else (as far as I know).
Expected value = Probability of x% gain (loss) * Actual gain (in Rs.) on x% gain (loss)
I see people around me thinking on the lines of ‘15% gain pukka’, ‘Rs.300 grey market premium’ etc while investing in this IPO (I think any IPO in a bull market would come up with such terms). However, a good process would involve calculating the expected value by plugging in probabilities for different gain (or loss)% and then calculating the actual return on the investment rather than a wild guess. I have endeavored to do just that.
I have attached an excel sheet which analyses the MCX IPO on this expected value framework. Assigning % gains and probabilities is a matter of guesswork (but primarily based on experience, current market conditions, pricing of the issue, marquee etc.).
The expected value depending on various probabilities (based on my little experience) if I invest in this IPO comes around 13% p.a. I have taken a pass though.
I think I have considered most parameters (let me know if I have missed any). They include –
a) I assume money goes out from my account today, 24-Feb-12. I invest Rs.1 lakh.
b) I assume MCX will list 15-17 days later. In the excel sheet, I have taken it as 11-Mar-12 (and I sell on the listing day itself).
c) In case of non-ASBA (based on various twitter discussions, I have found that if you are applying online through your broker, it will be non-ASBA), you lose interest on the invested 1 lakh for 15-17 days (since you need to transfer this amount to your broker who obviously wouldn’t pay you this interest).
d) We need to pay short term gains tax on selling on listing.
Please plug in your values based on your experience and let me know what you think would be the approx. gain p.a if I invest in this issue.
Also, this spreadsheet can be re-used for any IPO (not just MCX IPO) by just changing the dates and the fields in green. Let me know your feedback on the spreadsheet.