The Reliance Petroleum (RPL) issue was oversubscribed over 51 times. This means there were at least 51 offers to buy every share available.

The “retail” part of the issue was oversubscribed 14.91 times. Retail means investment of under Rs. 1 Lakh; and in the RPL issue the retail segment was allocated 13.5 crore shares.

Most retail investors have applied at “cut-off” (meaning they are bidding at Rs. 62 per share). So retail investors are willing to pay over 12,480 crores for RPL shares. This is mindboggling!

Compare this with earlier big issues. The TCS issue was 4,800 crores (25% retail) ; the biggest issue till date, ONGC in 2004, was Rs. 10,000 crores (25% retail). Retail oversubscriptions was 3 times for TCS and ONGC was undersubscribed in the retail part!

That means retail investors have invested only 3600 crores (TCS) and 2000 crores (ONGC). Note that for the TCS/ONGC IPOs, retail investors were limited to Rs. 50,000, investment only but had to pay up the FULL bid upfront. In RPL, retail investors could go up till Rs. 100,000 but pay up only Rs. 16 per share (rest paid on allocation).

What this means is that the number of retail investors has gone up DRASTICALLY over the last two years. If you consider that ALL retail investors put in bids in RPL for 1600 shares (the maximum shares under the Rs. 100,000 limit at Rs. 62 per share), we get 12.48 lakh investors (minimum). The real figure is going to be much larger, perhaps more than 15 lakh investors.

This is by far the biggest response to a public issue of a company that is essentially a greenfield project. Remember here that ONGC and TCS were profit making companies and ONGC was already listed in 2004. RPL has the “R” – Reliance – which has been known to be extremely kind to investors.

Could this be another rigged IPO? We know from the Roopalben Panchal case that people are looking to rig IPOs, and the RPL response also shows signs of serious rigging. I hope SEBI will investigate.

But this is a big eye-opener. More retail investors are getting in, and perhaps, just perhaps, it’s time to slow down now. With frenzy building up to unknown levels and high level of mostly gullible, uninformed investors (“retail”), the markets are bound to fall; history demonstrates that.

And it’s logical as well. With more uninformed investors willing to invest on rumours and “tips”, all that a big investor has to do is appear bullish by buying a large quantity of a share; the news spreads, “tips” and rumours are floated, everyone buys like crazy and the large investor quits at the high. Eventually the small guys are left holding overpriced shares, and one fine day, a few decide to cut their losses. Rumours spread, tips surface and suddenly everyone is selling.

When this is sufficiently large, the stock markets plummet. The retailers vow never to invest in stocks again; saala, bahut paisa duba. The big investors start picking up the underpriced shares again.

Get smart. Get out now. 50% at least.

I’ve never said this before. I still believe there is value in the market – in specific shares. But by and large, most shares are overpriced – whatever you think is overpriced now, sell them.

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