The government’s disinvestment programme kicked-off last week with the selling of its 5 per cent stake in the steel-maker SAIL. The offer for sale (OFS) through which the government raised Rs 1,725 crore saw strong participation from retail investors and the retail component of the issue witnessed a subscription of 266 per cent. The strong demand for the OFS follows from a weak performance of SAIL at the stock markets over the last six months when shares of the company fell by over 10 per cent, even as the overall equity markets saw significant gains.
While several other issues have been lined up by the government and are set to hit the market over the next couple of months, The Indian Express tries to find out whether it makes sense for retail investors to take this as an opportunity to invest in these stocks, given that share prices of most of them have corrected significantly following government’s announcement on the companies in which it will offload its stake.
Gaps to be filled for retail investors
Before getting into whether a retail investor should invest or not, it is important to know that OFS platform is designed for brokers and if one wishes to buy shares then they have to do it through their broker. Therefore, a new investor looking to participate in the OFS, should first meet his broker and speak about his intent to invest and deposit the requisite money with the broker so as to be able to invest in the offer.
Also it is tough for retail investors to discover the bid price in comparison to institutional investors and therefore he may lose out on that account.
“Sebi has now come out with a circular which says that retail investors can bid at the cut-off price and the discount will be offered to them on that. This will take away some pain for the retail investor however I think that the government should come out with a fixed price FPO (follow-on public offering) and offer a larger discount to retail investors to enhance participation,” said Prithvi Haldea, chairman, Prime Database.
The line up for the year
Apart from SAIL, the government also plans to sell stakes in a number of other public sector firms that retail investors could look at for investment. For starters, there are two big-ticket stake sales lined up over the next two months including state owned oil explorer ONGC Ltd and coal behemoth Coal India Ltd.
“SAIL was just the start. We are trying to process through all the last minute details for both CIL as well as ONGC and these should take place by the end of January,” said a senior government official close to the development.
Typically, the holiday season around the New Year does not see much activity in the markets and the disinvestment drive could pick up steam again in the latter weeks of January.
Additionally, the government is also working on listing of two PSUs including Hindustan Aeronautics Ltd as well as RINL through an initial public offer (IPO) involving 10 per cent disinvestment in each.
The finance ministry has also initiated the disinvestment process for 5 per cent stake sale each in two power sector PSUs — Rural Electrification Corp and Power Finance Corporation — but it is not clear whether they would go through this year as approval from the Union Cabinet is pending.
“We are working on these two stake sales as well but a final call is yet to be taken. Also, it will depend on how much of the disinvestment target we meet from the other stake sales,” said the official.
The Centre plans to raise Rs 43,425 crore through share sales in various state-owned firms in 2014-15. Minister of state for finance Jayant Sinha had recently informed the Rajya Sabha that the expected realisation from ONGC was Rs 11,477 crore, Coal India Rs 15,740 crore and NHPC Rs 1,976 crore. However, experts point out that the realisation could vary depending upon the direction in which the share prices move ahead of the stake sale in these PSUs.
For risk-averse investors who do not wish for a direct exposure to stock markets, the government is also working on an exchange traded fund of shares of SUUTI (Special Undertaking of the Unit Trust of India) holdings. However, its modalities are still being worked out and a call on its timeline is yet to be taken.
Meanwhile, keen to encourage participation of retail investors in stake sales, the government is also reserving a portion of the shares on offer for them as well as providing a discount, even in the OFS route.
In the case of the SAIL disinvestment, at least 10 per cent of the shares was reserved for retail investors bidding for up to Rs 2 lakh each and they were also offered a 5 per cent discount on the bid price entered by them. Officials said that this model would be replicated in all other disinvestment offers taken up.
Should you invest ?
The broader stock market has been on a bull run since the new government assumed power. While the Sensex at the Bombay Stock Exchange is up by over 15 per cent since May 26, 2014, the public sector index comprising of 59 listed PSUs has seen its value decline by over 2 per cent in the same period. Barring public sector oil marketing companies and banks most other state-owned companies have seen a decline in their share prices.
“Investors are smart these days. When they know that the government is going to offload some of its holding then they wait for it as the price remains under pressure. They come at the time of stake sale,” said CJ George, MD, Geojit BNP Paribas Financial Services.
While the share prices of most of the companies, where the government plans to divest some of its holding have come down significantly, experts say that it does make sense for small investors to invest in these companies for the long-term as their share prices have fallen primarily on account of bear hammering (following government’s announcement to offload part of its stake) and their fundamentals remain intact.
“The government should however offer a higher discount because a discount of 5 per cent can be wiped out in a day’s volatility,” said Haldea.