Market turns bullish on govt's disinvestment target

Wants more IPOs, higher discount to retail investors.

The response to the recent issues of public sector companies may have been less than encouraging, but leading market players and experts said the Budget’s ambitious target of raising Rs 40,000 crore through disinvestment in the next financial year is eminently achievable.

There is, however, a big wish list as well: The government should get its act together on pricing and look more towards initial public offers rather than follow-on issues. Besides, active retail participation should be the focus of the disinvestment process even if the government realises a slightly lower amount.

“It is a realistic target and I think the government could have set a target of Rs 50,000 crore,” says R Balachander, partner and IPO leader at Ernst & Young.

The next financial year’s target is Rs 15,000 crore more than the current year’s Rs 25,000 crore. In March, the government will dilute its stake in mining firm NMDC to raise between Rs 13,000 crore and Rs 15,000 crore.

“If you get the price and methodology right, it is achievable,’ said Prithvi Haldea, managing director, Prime Database, an independent primary market monitoring firm. He said the government need to have a separate strategy for FPOs and IPOs.

For FPOs, he suggests only retail participation with a 15 to 20 per cent discount to the market price. In IPOs, only 25 per cent should be reserved for institutional investors and that too through a closed book building process with retail investors being offered shares at the lowest bid price.

But Ashok Kumar, promoter of IPOguru.com suggests the retail discount should be on the discovered price and not on a moving secondary market price in case of a FPO.

Many others said it was only FPOs that witnessed subdued retail response on account of the price movement in the secondary market. “IPOs will not face such a situation," said Anagram Capital CEO Mayank Shah. V K Sharma, head of private broking and wealth management at HDFC Securities said IPOs were the right way to raise money. “When you have so many unlisted companies, why should the government go for FPOs,” he pointed out.

There is also a view that giving a higher discount to the retail investor is a good way of attracting new investors. “It is public money and should go to the public only,” pointed out Balachander of E&Y. The government should not be too ambitious to raise the full value of the shares it sells; even if the amount it raises is a bit lower, there would be no controversy since the common public will gain.

There are, however, a few who think the target looks a bit optimistic and a lot will depend on overall market sentiment. “Disinvestment targets of Rs 40,000 crore are not small and would be hostage to market conditions. Let’s also not forget that the private sector would probably be raising resources as well given the significant pick-up in the capital expenditure cycle,” said Prabhat Awasthi, managing director, Head of Equity Research (India), Nomura Financial Advisory & Securities.