Dalal Street gets a new adviser

Government offers tips on timing a public issue

It is the country’s largest issuer of bonds by default. But the government of India thinks it has enough expertise to give the private players a tip or two on how to time the equity market.

That’s creditable at a time investment managers in the private sector are sweating over the vagaries of the stock market.

A finance ministry handbook on disinvestment released by Finance Minister Pranab Mukherjee last week gives some interesting tips on “timing an issue.” The handbook not only talks about the behaviour of local and foreign investors but also gives insights into the impact of derivatives on stock prices.

Here are five lessons on extracting value from papers:

Lesson 1: Shradh and Kamrutas a big no-no: Certain periods of the year may be considered inauspicious for taking investment decisions in some parts of the country. The month of Ashada, which corresponds to June-July, is considered inauspicious in many parts of the country. Kamrutas, a period immediately before Sankranthi, is a no-deal period for investors in Gujarat. Most government issues have avoided early January and June-July.

Lesson 2: Don’t spoil the X-mas break of foreign investors : No public issue can be marketed to foreign institutional investors from mid-December to the first week of January as these investors are on vacation for Christmas and New Year.

Where was it learnt?
This leads to crowding of issues before the Budget. But this year, the government was ready with the follow-on public offer (FPO) of SAIL, but was pipped at the post by the Tata Steel FPO, which hit the market on January 19. The government has since changed the rules for investment bankers to ensure it’s not caught off-guard.

Lesson 3: Keep an eye on futures and options (F&Os): The monthly series in the F&O segment expires on the last Thursday of every month. Often, two-three days prior to this, stocks are volatile and may see some selling pressure due to unwinding of hedged F&O positions. This aspect may be discussed to finalise the day the stock is to be listed.

Where was it learnt?
A number of FPOs, like those of NTPC and REC, ran into rough weather as speculators shorted their shares in the F&O segment, dragging down prices and demand.

Lesson 4: Avoid weekend jitters: The issue should preferably open and close the same week as investors may not be comfortable keeping application money locked in over the weekend. Thus, the opening day could be Monday or Tuesday, with the closing day being Thursday or Friday.

Where was it learnt?
So far, four out of 12 issues, NHPC, REC, SJVN and MOIL, have remained open over the weekend.

Lesson 5: Keep an eye on elections: Opening of public issues may be timed in such a way that it does not clash with general/state elections in any part of the country. However, if it is not possible to change the dates, the administrative ministry should take prior approval of the Election Commission of India.