Will PSU offers get oversubscribed?
The Bihar election results seem to have jolted the National Democratic Alliance (NDA) into realising that people are fast losing patience with the absence of strong economic reforms that swept the BJP-led (Bharatiya Janata Party) government to power. The slew of decisions announced since then includes easier foreign direct investment (FDI) in 15 sectors via the automatic route, reviving 34 stalled road projects, some relief for exporters and restarting the public sector disinvestment programme. The Cabinet has approved a 10% sale of its holding in Coal India Limited (CIL). This is expected to fetch over Rs20,000 crore, bridging a part of the gap in the disinvestment target of Rs69,500 crore announced for the year, of which divestment worth only Rs12,600 crore has happened so far. It has also cleared an initial public offering (IPO) of 2.26 crore shares, plus a sale of the 1.13 crore shares held by the government in Cochin Shipyard Ltd (CSL).
Despite the usual protests from trade unions, the disinvestment programme will be the easiest to accomplish. After all, success is guaranteed as long as Life Insurance Corporation (LIC) can be ordered to buy the shares. It is a matter of embarrassment that the government has to resort to such cosmetic disinvestment, when ‘ease of doing business’, ‘Make In India’ and ‘minimum governance’ have been the slogans that brought the NDA to power. The single most important reason for this is aggressive pricing. At Moneylife, we believe that investors have nothing to lose by avoiding IPOs because bankers and promoters have always priced IPOs expensively.
Of the 16 IPOs so far this year, eight fell on listing and continue to quote at a discount to the offer price. Fortunately, of the three big IPOs in October-November, InterGlobe Aviation (Indigo Airways) and SH Kelkar, the perfume company, posted smart gains. This is a positive development for the primary market. Good IPO pricing requires companies to leave something on the table to attract new investors on listing; but neither investment bankers, nor large institutional investors, who have a say in pricing, have cared about this, for over a decade. Sensible pricing obviates the need for unworkable safety-nets that attempt to eliminate the risk of a high-risk-high-return investment.
Consequently, retail and employee quotas in IPO offerings remain undersubscribed, even when institutional and HNI (high net-worth investors) quotas are hugely oversubscribed. When it comes to public sector undertakings (PSUs), institutional investors are rather more sceptical about the investment opportunity, while retail investors are likely to have more faith in a sarkari company. This is probably why the Securities and Exchange Board of India (SEBI) has, finally, woken up to the disinterest of retail investors in IPOs. Ironically, media reports suggest that SEBI believes that the problem is with the marketing, rather than pricing, of IPOs and plans to take it up with the investment banking industry at its annual summit.