Investors rue opting for OFS route

Stocks of public sector companies (PSUs) have been underperformers with most of them losing their one-third market value post the OFS

It has been raining misery for investors who subscribed to stocks under the Offer for Sale (OFS) route. Scrips of 37 of 53 companies sold through this in the current year are quoting below their floor price.

The BSE S&P Sensex has lost 1,120 points, while the National Stock Exchange’s CNX Nifty has shed nearly 400 points or 6.5 per cent, in the nine trading sessions between July 23 and August 5.

“The stocks are correcting on account of a challenging macro economic environment. Until the rupee stabilises and growth actually kicks in, the pressure on the economy and in turn the markets, is likely to continue. The recent measures by the Reserve Bank of India (RBI) to defend the currency have also impacted sentiment and have put pressure on liquidity in the system,” says Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India).

PSUs slump
Public sector undertakings (PSUs) have been underperformers, with most of these losing a third of their market value after the OFS. These companies have been hit by sharp discounts offered during the OFS, analysts suggest. The BSE PSU index has tanked nearly 30 per cent so far in calendar 2013, as compared to a 3.7 per cent fall in the CNX Nifty and a 1.3 per cent drop in the BSE S&P Sensex.

Rashtriya Chemicals and Fertilizers (RCF) was a major loser among the PSU pack, trading 41 per cent below the floor price of Rs 45. National Aluminium (Nalco) and Steel Authority of India (SAIL) are quoting 37 per cent below their floor price at Rs 25 and Rs 39.90, respectively. Nalco had fixed its offer price at Rs 40 and SAIL at Rs 63 a share.

As regards PSU banks, the June quarter results reveal their non-performing assets (NPAs) have gone up substantially. The market cap for most of these has started to get eroded, analysts say. Says A K Prabhakar, senior vice-president (retail research), Anand Rathi Financial Services: “I don’t think that a recovery is possible. A number of companies have already been lined up for OFS. Stocks of these companies can trend down, as the government is likely to come out with an OFS price which is below the market price. Investors are not interested in buying a PSU stock, since there is pressure on growth, coupled with the government’s disinvestment agenda.”

Outlook
Among individual stocks, Jaypee Infratech, BGR Energy Systems, Elantas Beck and JSW Energy have seen value erosion of a little over 40 per cent, while Adani Enterprises, Jet Airways and Tata Communications are currently trading 27-32 per cent below their offer price.

Despite the sharp fall in most of these stocks, analysts suggest recovery will be slow. “There are a number of companies that are fundamentally strong in terms of business fundamentals in the banking and the metal pack. But as the outlook is a bit hazy, the investors are nervous right now,” says Agrawal of Mirae Asset. Neeraj Dewan, director, Quantum Securities feels there is no quick solution to the problem and investors are waiting for the outcome of next year’s general elections, so that they can take an investment call accordingly. “Once there is an inclination of the outcome of the polls, there can be a minor recovery in overall sentiment. I don’t see lower levels for these stocks. At best, they will remain range-bound,” he says.

Adds Chokkalingam of Centrum Wealth Management: “Some of the stocks had a run-up, pre-OFS, on delisting hopes. So, a fall is some of these counters is also due to over-valuation. In a few cases, the pricing was also quite aggressive. As far as recovery is concerned, I don’t think all of them will recover. Elantas Beck, for instance, can; the company is fundamentally sound and has a lot of cash on its books that can fuel growth. As regards RCF, fertiliser subsidy is a big issue and there is a lot of pain still left for the metal stocks to endure.”

Adding “MMTC, I think, is not a great fundamental story. On the other hand, I am bullish on the prospects of Jet Airways, given the FDI (foreign direct investment) in the aviation sector. We have a buy rating on Styrolution ABS. As regards oil and gas stocks, the pressure due to the rupee and crude oil prices, amid the subsidy burden, will remain an overhang for oil refining and marketing companies. I do not suggest buying Indian Oil Corporation.”