Volatile markets derail disinvestment plans in 2011

Volatility in the capital markets, mainly driven by global factors, forced the government to repeatedly postpone the public issues by PSUs. In certain cases, the PSUs could not come out with the public offerings because of delay in appointment of independent directors by the government

New Delhi: The government’s disinvestment programme remained on papers with only one public sector undertaking (PSU) hitting the capital market raising only Rs1,145 crore in 2011, as against the target of mopping up Rs40,000 crore during the current fiscal, reports PTI.

During the year, proposals were mooted for disinvestment of several companies, including BHEL, ONGC and SAIL, but none of them saw the light of the day.

Volatility in the capital markets, mainly driven by global factors, forced the government to repeatedly postpone the public issues by PSUs. In certain cases, the PSUs could not come out with the public offerings because of delay in appointment of independent directors by the government.

The department of disinvestment (DoD), which has been mandated to raise Rs40,000 crore, had to think of innovative ways, like buyback of shares by cash rich PSUs to achieve the mammoth target for the current fiscal.

In May, the DoD came out with follow-on public offer (FPO) of Power Finance Corporation (PFC), the only PSU issue which hit the capital market.

The PFC FPO opened on 10th May and closed on 13th May and the issue was subscribed 4.32 times. The company, in which the government diluted 10% stake, gave Rs1,145 crore to the exchequer.

The stake dilution was part of concerted efforts to raise funds to boost government finances.

Anticipating Rs40,000 crore fund mop up through disinvestment, the government had fixed a fiscal deficit target of 4.6% in the current fiscal.

However, with disinvestment target unlikely to be met, the fiscal deficit could exceed the budget estimates.

Besides blue-chip companies like BHEL, ONGC and SAIL, the government had also identified Hindustan Copper (HCL), Rashtriya Ispat Nigam (RINL), National Buildings Construction Corporation (NBCC) and Hindustan Aeronautics (HAL) for disinvestment in the current fiscal.

However, the stake sale had to be put off because of the impact of decline in global markets on Indian bourses. The Indian equity markets benchmark BSE Sensex declined 25% so far in 2011 falling to 15,379.34 points. It was quoting at 20,509 points on 31 December 2010.

Besides, the draft paper for ONGC FPO filed with the Securities and Exchange Board of India (SEBI) was withdrawn for the lack of adequate number of independent directors. The government plans to offload 5% stake that would fetch it around Rs12,000 crore, nearly one-third of the budgeted target.

Besides, plans are on to offload 5% equity in power equipment maker BHEL, which would fetch over Rs4,000 crore and draft papers for which have been filed with the market regulator SEBI.

In view of uncertain market conditions, companies like SAIL and Hindustan Copper (HCL) have deferred fresh equity issue, though the government will go ahead with its proposal to offload stake.

Besides, SAIL FPO has failed to meet deadlines repeatedly since December 2010, due to several reasons, like rising coking coal prices, problems with merchant bankers and adverse market conditions.

The DoD is believed to have identified two dozen cash rich PSUs having a total balance of nearly Rs2 lakh crore for buying back shares.

The companies which have been identified by the government for buyback include SAIL, NMDC, ONGC, NTPC, Coal India, Oil India, MMTC, Neyveli Lignite, NHPC, BHEL and GAIL.

Such companies may be asked to buy back about 5% equity from the shareholders. Under the current regulations, market regulator SEBI allows companies to buy back their own equity from shareholders.

Under the buyback mode, the government can raise money by selling its equity in the company to the concerned PSU itself.

In 2010, the government had raised a record Rs40,000 crore in nine state-owned companies including Coal India, NMDC, NTPC and Rural Electrification Corporation (REC).

The amount was the most raised in a year since the government began the programme of diluting minority stake or privatising vast swathes of public sector companies in 1991-92.

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RBI likely to go for rate cut in Q2 2012: Nomura

“We expect the RBI to start cutting policy rates in Q2 2012, as growth is likely to deteriorate in the next few quarters,” global credit rating and research firm Nomura said

New Delhi: Inflation in India is likely to moderate as per the Reserve Bank of India’s (RBI) projection while the growth is expected to fall, prompting the apex bank to start interest rate cuts from the second quarter (Q2) of 2012, reports PTI quoting global credit rating and research firm Nomura.

“We share the view on the near-term inflation trajectory with the RBI and believe that the rate-hiking cycle is over,” Nomura said in its latest issue of ‘Asia Economic Alert’.

Falling economic growth numbers may also prompt RBI to go for rate cuts, it added.

“We expect the RBI to start cutting policy rates in Q2 2012, as growth is likely to deteriorate in the next few quarters,” Nomura said.

In its mid-quarterly economic review earlier this month, RBI hinted at rate cuts in future. It had increased rates 13 times since March 2010 to tame inflation.

The central bank kept its key policy rates unchanged during the last review. It retained its year-end inflation projection at 7%, while stating that it will make a formal assessment of its inflation projections for 2011-12 in the third quarter review in January.

“From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth,” the RBI had said.

The overall inflation has been above the 9% mark since December last year. However, food inflation fell to a four-year low of 1.81% as on 10th December.

The central bank also said that deceleration in growth is contributing to a decline in inflation momentum, helped by softening food prices.

Economic growth in the July-September quarter slumped to a 6.9% —lowest in over two years, as against 8.8% in the same quarter of the 2010-11 fiscal.

Besides, industrial production entered the negative zone in October and contracted 5.1%.

RBI had also said that there is a downside risk to its projection of 7.6% growth for 2011-12 on account of the global slowdown and domestic issues.

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Currency derivatives lose momentum; USE hit hardest

As per the market regulator SEBI’s latest monthly bulletin, the one-month turnover of currency derivatives at the NS) declined by 33% to Rs2,73,114 crore in October. The decline was larger for rival MCX-SX at 37.1%, but the losses were much higher at 63.5% at the USE, the third player in the segment, for the same month

New Delhi: The currency derivatives trading, once touted as the Indian capital market’s next big thing, seems to be bleeding business and the newest kid on the block, the United Stock Exchange (USE), is taking the maximum hit, reports PTI.

As per the market regulator Securities and Exchange Board of India (SEBI’s) latest monthly bulletin, the one-month turnover of currency derivatives at the National Stock Exchange (NSE) declined by 33% to Rs2,73,114 crore in October.

The decline was larger for rival MCX-SX at 37.1%, but the losses were much higher at 63.5% at the USE, the third player in the segment, for the same month, SEBI data shows.

NSE was the first exchange to foray into this segment in August 2008, followed by Bombay Stock Exchange (BSE) and MCX-SX in October that year.

While BSE stopped all its operations in the currency derivatives segment in April 2010, the USE entered this market in September 2010. The BSE is a major shareholder in the USE.

The decline at USE appears much sharper, when seen in the context of the exchange’s initial period trade volumes.

The USE had launched its trading on 20 September 2010 with opening-day volume of 9.88 million contracts, a world record for the first-day trading at a new exchange.

Thereafter, the month-on-month volume grew for quite a few months, but has declined sharply in the recent past.

The USE clocked a record-high trade of over Rs45,000 crore on its first day, but its daily trade value was just Rs264.46 crore in the last trading session on 23rd December.

The monthly trade volumes have also declined sharply in the past four months, which has come as a big surprise for the market players as the USE remains the only exchange not charging any transaction fees on currency derivatives trade.

The two rival exchanges, NSE and MCX-SX, started levying transaction charges on currency derivatives in August.

Incidentally, the USE volumes have been declining sharply since that month, thus defying the theory of zero transaction fee regime being good for this nascent-stage segment.

There are no official words, but speculations are rife that the decline in the USE’s trade volumes was because of an ongoing SEBI probe into the state of affairs at the bourse.

Earlier in October, TS Narayanasami had quit as the managing director of the USE, and the industry sources had attributed his resignation to the differences he had with some other senior management personnel and certain promoters.

The differences are said to have been over the levy of transaction charges, among other issues.

Also, there have been reports about a conflict of interest and a possible breach of fair-trade practices at the USE due to one of its largest shareholders, Jaypee Capital, also being a major trader on the exchange.

The reports had said that about 80% of trade volumes were coming from Jaypee Capital alone.

Industry sources say that the trade volumes might have declined because of Jaypee Capital limiting its exposure due to the SEBI probe.

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