FPOs fail to boost liquidity in PSU counters

Follow-on public offerings (FPOs) have failed to improve trading volume in three of the four state-run companies that came out with their issues this year, due to lower-than-expected financial performance and concentrated shareholding.

Ideally, trading volume should improve after an FPO, due to availability of more numbers of shares. However, average trading volume in NTPC, NMDC and Engineers India has come down, show data compiled by the Business Standard Research Bureau for the six months prior to the listing of FPO shares and the period after.

According to Deven Choksey, managing director of KR Choksey Shares and Securities, NTPC, NMDC and Engineers India have not met street expectations in financial performance. “They are short on delivering what they had promised. This could be one reason behind lower average trading volume in these counters post FPO,” he said.

NTPC and NMDC have seen drops of 31 per cent each in average trading volume after the FPO availability. In case of Engineers India, average trading volume declined about 20 per cent. Only Rural Electification Corporation has seen a rise, of 26 per cent, in average trading volume after the FPO.
 

AVERAGE TRADING VOLUME*
	List of Date	Six month before FPO listing	After listing, till Date
NTPC	Feb 26, 2010	4347886	2982564
Rural Elect Corp	Mar 8, 2010	1623394	2056560
NMDC	Mar 29, 2010	1550341	1069049
Engineers India	Aug 12, 2010	903905	723467
* Comibine Shares on BSE & NSE                 Compiled by BS Research Bureau

“Poor stock performance and concentrated holding are the key reasons behind lack of trading interest in case of NTPC and NMDC,” said Jagannadham Thunuguntla, equity head at SMC Capitals. The shares of NTPC and NMDC are trading well below their FPO prices of Rs 201 and Rs 300, respectively. NTPC closed at Rs 178.10 today on the National Stock Exchange, while NMDC ended at Rs 256.50.

The Union government owns 84.5 per cent in NTPC, while Life Insurance Corporation (LIC) has a 3.53 per cent stake.

In NMDC, the government owns 90 per cent in the iron ore producer, while LIC owns 4.97 per cent.