The Centre’s ambitious plan of raising Rs 80,000 crore by way of disinvestment this fiscal is expected to find more buyers than in the previous two to three financial years, a shift that can be credited to the change in the country’s political as well as economic situation, and its effect on equity markets.
Investment bankers feel the market has appetite for government paper.
Some of the companies were established long ago and are well renowned among domestic as well as foreign investors. Besides, there is a high degree of investor optimism that the government to take tough policy measures and kick-start the economic reforms agenda.
According to Ajay Saraf, ED and head of corporate finance and institutional equities, ICICI Securities, investors are showing a deep appetite for Indian stocks given the way foreign institutional investors’ (FIIs) money has flown into Indian markets and the relative performance to other emerging markets.
“The positive sentiments prevailing in the secondary market and increasing investor appetite which has been triggered by a new stable government. Going forward we expect banking, financial services, PSUs and some cyclicals to dominate fund raising. We see an increasing participation from Indian investors especially retail investors and we expect such investors to actively participate in IPO and PSU OFS, especially if there is a retail discount offered,” Saraf said.
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According to reports, the new government has raised its FY15 disinvestment target by 41% from last year to Rs 80,000 crore. The Centre has announced plans to sell stake in state-owned companies like Coal India (CIL), Hindustan Zinc (HZL), Balco, Steel Authority of India (SAIL), Rural Electrification Corporation (REC), and Power Finance Corporation (PFC) among others.
The government has already initiated the valuation process for HZL (29.5%) and Balco (49.%) stake sale. Estimates suggest the exchequer could get Rs 22,000 crore from both the companies.
The Centre may raise an additional Rs 36,000 crore from CIL to comply with Sebi’s minimum public shareholding norms. Sebi extended the regulations of 25% minimum public float to listed state-owned companies – a norm that applied only to privately held listed entities. As a result, CIL will have to trim its promoter holding to 75% from 89.65% as on the quarter ending March 2014.
Besides, an additional 34 companies have public shareholding below 25% and may help the Centre raise about Rs 24,000 crore.
“There is no lack of appetite. The market sentiment has changed with the changes in economic and political situation. The government needs to set the price right. Appetite among retail investors is also improving and a significant discount to market price would do wonders. Another option is a closed auction bidding, where the issue could be announced one day prior and you could see large quantities being bought even at a premium,” said Prithvi Haldea, CMD, Prime Database.
Hopes of likely turnaround in economic situation has improved sentiment in the secondary market. Benchmark indices have given positive returns to the tune of 25% since February this year, helping Indian markets the best performing market on expectations of Modi’s victory in the national elections.
Investment bankers said that Indian markets have the potential to receive another $15-20 billion, and about 50% of the total FII flows could flow into equity offerings like IPOs, FPOs, QIPs, and government disinvestment.
“If you consider FII flows over the last two years, India received about $20-25 billion each year even though the economic environment was challenging. However, the inflows were restricted to only the top 30 stocks. As against that, we are seeing a broad-based rally now, which goes beyond the top 200 companies. FII inflows can potentially be close to $30 billion, if not higher, and at least 50% of this amount can be absorbed by the primary market – IPOs, FPOs, OFS, QIP and disinvestment. This will be a healthy trend for the markets, for otherwise there is too much money in the system chasing limited number of stocks, which could lead to an asset bubble,” said V Jayasankar, senior ED and head of equity capital markets, Kotak Investment Banking.
Ankit Doshi | The Financial Express