The government will have to be unusually quick to exploit the current window of opportunity by divesting stakes in fundamentally strong public sector firms and channel money into large infrastructure and development projects
With the markets on fire, many investors seem to think that the government must grab this opportunity to absorb the gush of foreign investment coming into India and overheating the secondary markets. There is too much money chasing too few stocks and the market desperately needs a slew of solid companies to use this opportunity to raise finance.
Otherwise, we are bound to see a rush of opportunistic promoters with dodgy governance, mopping up the money through pumped-up valuations for companies with uncertain long prospects. More importantly, the money raised through disinvestment can be used to bridge the fiscal deficit, instead of the finance ministry's current strategy of getting its revenue agencies to harass genuine business to pay more.
On the other hand, with all the negatives of being dependent on the whims of politicians, public sector undertakings (PSUs), especially the ones that have been lined up for disinvestment, have rock solid businesses. We spoke to Disinvestment Secretary Sumit Bose on whether there was any possibility of increasing the pace of disinvestment. He said, "We are doing much faster this time. Until now we never had a pipeline. Earlier when we divested NMDC (National Minerals Development Corporation), NTPC (National Thermal Power Corporation) and REC (Rural Electrification Corporation), we had to get cabinet approval first, after which we started the process of appointing investment bankers, other intermediaries, starting the due diligence process and then filing with SEBI (Securities & Exchange Board of India). A few months ago, we have got fast-track approval from the cabinet".
This means that as soon as the appropriate administrative ministry and the finance ministry agree that a particular company should come up for disinvestment, the IPO processes such as appointment of intermediaries is started without waiting for the formal approval from the Cabinet Committee. He also says, the experience of handling past issues has helped create a pipeline since the ministry is "not reinventing the wheel each time".
According to Mr Bose, the pipeline is as follows: Once the Coal India offering is complete, Power Gird Corporation is scheduled to hit the market on the Monday just after Diwali; next in line is Manganese Ore India Limited (MOIL) which will be followed by Shipping Corporation of India (SCI) towards the end of November. In early December we are looking at Hindustan Copper Limited (HCL) and then in January, at SAIL (Steel Authority of India Limited), Indian Oil Corporation and Oil and Natural Gas Corporation.
On whether the government is planning to revise the target of Rs40,000 crore that it hopes to raise before 31st March, Mr Bose says no, even though the secondary market outlook as well as the extent of foreign funds coming into India have accelerated dramatically since the target was set many months ago.
In fact, most market intermediaries as well as big investors admit to being seriously worried about the rising indices and ridiculously high valuations. The only way to cool excessively high prices in the secondary market is to infuse good quality stock into the primary market. For that to happen, policymakers in the government will have to be unusually quick to exploit the current window of opportunity and channel money into large infrastructure and development projects.
But even the current focus and speed is fairly unusual for the government of India and the Disinvestment Minister is able to work with PSUs to complete the filing processes within a month after all approvals are in. So far, the draft prospectuses of Power Grid, HCL and MOIL are already filed with SEBI for approval, the due diligence for SAIL has begun and while the rest are in the pipeline.
With regard to market outlook, Mr Bose told Moneylife that US investors are not too worried about Indian markets being overvalued or overheated right now. This is what he has gathered from his interactions with top institutional investors in the US, whom he had met individually. However, given the current disclosure norms, there is not much clarity as to whether the sudden inflow is short-term in nature. Money has been gushing into India Exchange Traded Funds that in turn invest in India index stocks. ETFs are heavily traded products and are essentially short term in nature.