Fund-raising plans a drag on markets

The Rs 25,000 crore to be raised through the primary market by both government and private companies in the next couple of months is pulling down the stock markets.

Markets experts said the long pipeline of issues was leading to selling by institutional and retail investors who were planning to apply for shares in these issues.

The government plans to dilute its stake in NTPC, NMDC and Rural Electrification Corporation; these and an initial public offering (IPO) from Sutlej Jal Vidyut Nigam, is expected to help it raise Rs 25,000 crore before the end of this financial year. IPOs from private companies like DB Realty and qualified institutional placement issues worth Rs 5,000-7,000 crore are also expected during the period.

“There is concern over supply of paper (FPOs, that is, follow-on public offers, and IPOs),” said Jyotivardhan Jaipuria, managing director and head of research at Bank of America-Merrill Lynch in India. He said stock markets were generally cautious when there was a huge supply of paper.

Stock prices started falling from the middle of this month. The Sensex and the Nifty have slid close to 8 per cent in the past six trading sessions.

Domestic retail brokers also think the huge fund-raising is affecting secondary markets. “Funds of large institutional investors will be diverted to these IPOs,” said Deven Choksey, managing director at KR Choksey Shares and Securities.

However, Divyesh Shah, chief executive officer of  Indiabulls Securities, said the secondary markets might not come under substantial pressure. But, he said, it was likely some investors might not be as excited about secondary markets as they had been for the past several months.