However well-intentioned the government’s disinvestment policy may be, the results till date haven’t met expectations.
And as far as unlocking wealth for all stakeholders is concerned, the least said the better; the share prices have plunged 22.5% (since the date of the issue, March 10, 2010). The valuation (Rs.300-350 per equity share) was way above what financial analysts had expected, and it is apparent that the government doesn’t really seem to be looking for broad based shareholding (in true spirit); it simply wants money and is least concerned about who’s buying the shares. Even for the NTPC issue (Rs. 240-250 per equity share) which was more or less reasonably priced, did not tempt the small investors (a 5% discount to the ruling price wasn’t good enough in this kind of volatile environment) and the retail investors hardly participated. The government needs to learn a lesson or two from the past two experiences (NTPC & NMDC FPOs, the retail subscription for NTPC FPO was a mere 0.25 times while that for NMDC FPO, a paltry 0.02 times) and realise that the retail participation will be better only if the issues are attractively priced. The idea, from now on should be to have a much broader investor base by targeting more retail participation, even if it means pricing the issue at a bigger discount. After all, be it NTPC, NMDC or REC, they have to come to the market again and again in order to fund their respective growth plans. Thus they need to build up a loyal and dependable shareholder base rather than cater to overseas institutions that move in and out in tune with their own priorities. If necessary, the quota for retail investors can be increased from the current 30%.
The start has not been up to the expectations and the current target too looks a bit optimistic and a lot will depend on the overall market sentiment. Prabhat Awasthi, Head of Equity Research (India), Nomura Financial Advisory & Securities, said, “Disinvestment targets of Rs. 400 billion 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.”
But there are others like R Balachander, IPO leader at E&Y, who believes that, “It is a realistic target and I think that the government could have set a target of Rs.500 billion.” How much of the intent (disinvestment plan of all profitable large PSUs) gets stuck in bureaucratic inactions remains to be seen.
As a matter of fact, in the past 16 years including FY’10, the government has exceeded its disinvestment targets only five times (see graph) and that makes one sceptical about achieving the target, leave alone increasing it. One of the prime reasons as explained by Bose is that the proceeds will be available to the government to be spent on capital intensive social schemes (he specifically says, “one set of national assets being replaced by the other”). While this may sound great, inherently the proceeds will help the government bridge the fiscal deficit (currently 6.75% of GDP) and help meet its target of reducing the same to 4.8% by 2011-12 and to 4.1% by 2012-13 (in tune with the recommendations of the Thirteenth Finance Commission).
Aninda Mitra, Vice Senior Analyst, Moody’s, says, “The financing of the deficit should be reasonably comfortable, if the government utilises its new-found ‘political space’ and follows through with a concerted disinvestment effort.” However, DK Joshi, principal economist, Crisil, has a slightly different take, as he says “Disinvestment programme should not be viewed from the angle of plugging the fiscal deficit as it is a temporary provision, the long term solution is that you should set your public finances right.”
Despite all odds, PSUs dominated FY’10 and raised a total of Rs. 309.42 billion or close to 66% of the total amount raised through the primary market. Of that, Rs. 211.62 billion was through divestments. The government seems determined to go ahead with its disinvestment plans, all that it needs is to follow its ‘budget wordings’ in true spirit else the government may not meet its target once again.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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And as far as unlocking wealth for all stakeholders is concerned, the least said the better; the share prices have plunged 22.5% (since the date of the issue, March 10, 2010). The valuation (Rs.300-350 per equity share) was way above what financial analysts had expected, and it is apparent that the government doesn’t really seem to be looking for broad based shareholding (in true spirit); it simply wants money and is least concerned about who’s buying the shares. Even for the NTPC issue (Rs. 240-250 per equity share) which was more or less reasonably priced, did not tempt the small investors (a 5% discount to the ruling price wasn’t good enough in this kind of volatile environment) and the retail investors hardly participated. The government needs to learn a lesson or two from the past two experiences (NTPC & NMDC FPOs, the retail subscription for NTPC FPO was a mere 0.25 times while that for NMDC FPO, a paltry 0.02 times) and realise that the retail participation will be better only if the issues are attractively priced. The idea, from now on should be to have a much broader investor base by targeting more retail participation, even if it means pricing the issue at a bigger discount. After all, be it NTPC, NMDC or REC, they have to come to the market again and again in order to fund their respective growth plans. Thus they need to build up a loyal and dependable shareholder base rather than cater to overseas institutions that move in and out in tune with their own priorities. If necessary, the quota for retail investors can be increased from the current 30%.
The start has not been up to the expectations and the current target too looks a bit optimistic and a lot will depend on the overall market sentiment. Prabhat Awasthi, Head of Equity Research (India), Nomura Financial Advisory & Securities, said, “Disinvestment targets of Rs. 400 billion 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.”
But there are others like R Balachander, IPO leader at E&Y, who believes that, “It is a realistic target and I think that the government could have set a target of Rs.500 billion.” How much of the intent (disinvestment plan of all profitable large PSUs) gets stuck in bureaucratic inactions remains to be seen.
As a matter of fact, in the past 16 years including FY’10, the government has exceeded its disinvestment targets only five times (see graph) and that makes one sceptical about achieving the target, leave alone increasing it. One of the prime reasons as explained by Bose is that the proceeds will be available to the government to be spent on capital intensive social schemes (he specifically says, “one set of national assets being replaced by the other”). While this may sound great, inherently the proceeds will help the government bridge the fiscal deficit (currently 6.75% of GDP) and help meet its target of reducing the same to 4.8% by 2011-12 and to 4.1% by 2012-13 (in tune with the recommendations of the Thirteenth Finance Commission).
Aninda Mitra, Vice Senior Analyst, Moody’s, says, “The financing of the deficit should be reasonably comfortable, if the government utilises its new-found ‘political space’ and follows through with a concerted disinvestment effort.” However, DK Joshi, principal economist, Crisil, has a slightly different take, as he says “Disinvestment programme should not be viewed from the angle of plugging the fiscal deficit as it is a temporary provision, the long term solution is that you should set your public finances right.”
Despite all odds, PSUs dominated FY’10 and raised a total of Rs. 309.42 billion or close to 66% of the total amount raised through the primary market. Of that, Rs. 211.62 billion was through divestments. The government seems determined to go ahead with its disinvestment plans, all that it needs is to follow its ‘budget wordings’ in true spirit else the government may not meet its target once again.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
“We will change your outlook” - The Sunday Indian on B-SCHOOL RANKING SCAMSTERS EXPOSED! A must read...
The Sunday Indian:-
B-SCHOOL RANKING SCAMSTERS EXPOSED!
For Exclusive Footage by Sunday Indian Click Here
Outlook Magazine's B School Ranking Scam Exposed
Business Standard Exposes the Outlook Magazine Money Editor
Don't trust the Indian Media!
IIPM enters into media education
IIPM makes record 10,000 placements in five years
TSI exposes b school ranking scamsters Mahesh Peri of Career 360 and Premchand Palety of C fore. - For Complete Sting Operation Video Click Here
Pioneer Exposes the fraud called Mahesh Sharma and Mahesh Peri of Career 360 and Barbel Schwertfeger of mba-channel.com
IIPM: An intriguing story of growth and envy
Prof Arindam Chaudhuri of IIPM on MF HUSAIN
