Money on the markets

The UPA government’s deferred divestment programme seems to have had a smooth take-off. State utility NHPC’s IPO was subscribed 23.5 times at close.

This is to be followed by an offering from another state heavyweight, Oil India Ltd, on September 7. But what do these high decibel IPOs mean for the stock market and small investors in particular?

On its part the government hopes to raise 18.54 billion rupees ($386 million) from stake sales in the two firms this fiscal. Its efforts bolstered by an upbeat stock market that has risen over 90 percent from 2009 lows in early March mainly on an influx of foreign funds.

Small investors are likely to flock to these state-backed IPOs because of their attractive pricing and a good track record. “The perception is that they leave something for investors on the table,” says VK Sharma, head of research at Anagram Capital.

The entry of IPOs often sees some pressure building up on the secondary market as retail investors tend to sell existing shares to fund investments in big-ticket IPOs. “Small investors are always under pressure for money. There will be some pressure on the secondary market, but that will not be big enough to impact it,” says Sharma.

The stock market closed at a 2009-high of 15,924 on August 3 and has been see-sawing since the opening of the NHPC offering. What needs to be watched is whether the market moves up or remains range bound in the coming months as Asia’s third-largest economy embraces a raft of equities offerings from private and public sector undertakings.