I have always had trust issues with most mutual fund houses that garner funds from small investors , but only manage an average return.
But when Reputed mutual fund houses become anchor investors for dubious and (horrendously) overvalued real estate companies, it leaves me in a big fix.
Lets take the case of Nitesh Estates.
This is a horrendously overvalued loss making firm that shown classic signs of being a dud IPO, with most players recommending one to stay out of it.
it is quite audacious of Nitesh Estates to even think of coming up with the IPO. For the nine months ended 31 December 2009, the company suffered a loss of Rs1.32 crore. For the financial year ended March 2009, it had a negative cash flow of Rs46.87 crore.As on 20 March 2010, the promoters have pledged 3.01 crore (42%) pre-issue shares to lenders under a debt agreement.Credit ratings agency CRISIL has assigned an ‘IPO Grade 2’ to the IPO, indicating ‘poor fundamentals’.
Still it manages to rope in Halbis Capital, SBI Mutual Fund, Nomura Japan and HDFC Mutual Funds for a total commitment of Rs 60 crore.
It is one thing that the Times of India group has a cosy Pre IPO placement / private treaty with the firm… little wonder it is being heavily promoted by them.
But when SBI Mutual Fund, HDFC Mutual Funds both reputed houses do such a deed i wonder …
Where have their expertise and common sense gone?
Is there another very private treaty between the officials of fund house involved in decision making and the merchant bankers / promoters akin to what happens in bcci/ipl or the defense ministry while giving out contracts?
Are they not playing with investor funds ?
Lastly by promoting duds don’t they realize the damage they are doing to their brand value and the investment culture ?