The primary market eyes disinvestment to gain momentum
Primary market issues may make a come back, with the equity market bouncing back in late November on softening crude oil prices and strenghtening domestic currency.
A slew of initial public offerings (IPOs) are waiting on the sidelines to tap the market at an opportune time. Among them are popular names like Lodha Developers, Mazagon Dock Shipyards, Nazara Technologies, Bharat Hotels, Anand Rathi Wealth Manage-ment, PNB Metlife, Affle India, Mrs Bector, Aakash Educations and Metropolis Healthcare.
This apart, disinvestment related public issues—IPOs and offer for sale (OFS) of government-owned companies and a debt ETF—may start hitting the primary market in the remaining months of the current fiscal, as close to Rs 48,000 crore of the government's disinvestment target is yet to be realised.
The overwhelming market response to the just concluded CPSE ETF Further Fund Offer (FFO), which was oversubscribed 3.5 times at Rs 27,300 crore, has renewed hopes in the primary market.
Sundeep Sikka, executive director and CEO, Reliance Mutual Fund, which is managing the CPSE ETF on behalf of the Government of India, said, this was the “largest ever follow-on fund raising. The Rs 17,000-crore raised from disinvestment is also the largest ever equity fund offering through ETF in India.”
Over 1.25 lakh applications were received for the CPSE ETF FFO.
The Rs 17,000-crore fund raised through the CPSE ETF is more than the entire money raised by the government this year through its disinvestment programme. Prior to this issue, the government could raise only Rs 15,247.11 crore against the current fiscal's disinvestment target of Rs 80,000 crore, partly because of adverse market conditions. The government still has to disinvest PSU shares worth Rs 47,752.89 crore to reach the target.
Volatile market conditions have not allowed big companies to launch their IPOs either. Merchant bankers say more than a dozen companies which have received the Securities and Exchange Board of India’s approval are holding back their IPO launches due to market uncertainty.
The primary market activity was quite robust until the end of September this year. Smaller companies were raising capital from the market until the primary market activity came to a standstill from October as market volatility heightened and the festival season, too, acted as a deterrent.
Still 25 initial public offerings hit the market so far this calendar year while in the small and medium enterprises (SME) category 133 companies have got listed on the SME platforms of BSE and NSE. SME IPOs raised close to Rs 2,200 crore this calendar year, which is 30 per cent more compared to last year.
The primary market is expected to be back in action soon, with the secondary market bouncing back and foreign portfolio investors turning net buyers in November.
Moreover, good inflows into domestic mutual funds may help the primary market to bounce back.
Equity funds saw inflows of Rs 12,622 crore in October, despite the sharp correction in the equity market, with the Nifty touching the lowest point of 10,005 this calendar year.
October equity mutual fund inflows were the highest in the financial year, topping May’s inflow of Rs 11,350 crore. Investors pumped in Rs 7,985 crore through systematic investment plans (SIPs) in equity funds, an all-time monthly high. This was Rs 258 crore more than September’s Rs 7,727 crore.
November equity mutual fund inflows data to be released this month will show if the fund inflows are intact. Domestic inflows are critical for the primary as well as the secondary markets, as domestic funds are now a much bigger stabilising factor for the market than foreign portfolio investors, whose investments have been erratic over the last one-year.
Volume-wise, the biggest push factor for the primary market in the remaining four months of this fiscal will undoubtedly be the government's disinvestment programme, with nearly Rs 48,000 crore remaining to be mopped up. Last fiscal, the government had exceeded its disinvestment target for the first time. It had collected Rs 1,00,056.91 crore against the target of Rs 1 lakh crore. A similar feat this year looks unlikely at this point as the market conditions have turned volatile.
The government has approved listing of 14 central public sector enterprises, including two insurance companies, on the stock exchanges. It has also initiated the process of strategic disinvestment in 24 CPSEs from last fiscal. However, only one deal, of ONGC-HPCL, has been completed so far. The strategic disinvestment process of 23 CPSEs/ units of CPSEs are in different stages of implementation.
The strategic privatisation of Air India is also part of the agenda. Though the government issued a preliminary information memorandum (PIM) for expression of interest (EoI) in Air India in March this year, no bids were received.
But the government's experiments with Exchange Traded Funds (ETFs) have been successful. ETF Bharat-22, launched to raise Rs 14,500 crore, was over-subscribed in all segments.
The Department of Investment and Public Asset Management (Dipam) plans to come up with more ETF offers, including debt ETF.
“Finance minister has approved the constitution of Inter Ministerial Group for appointment of one advisor, one market maker and one legal advisor for creation, launch and implementation of Debt ETF,” Dipam said.
The Debt ETF may help the government raise money quickly from the primary market.