Siddharth Tak/Zee Research Group
Seven years into power the UPA government’s much publicized promise to offer every Indian the opportunity to own shares of public sector companies remains very much a proposal on paper. Corporate India has done better offering a higher share to the retail investor during the period.
A study revealed that between May 2004 and May 2011 the retail investors held merely about 24 per cent of total public sector stocks listed during the period under review. During the same period, retail investors cornered 30 per cent share in public offerings made by private sector, revealed data furnished by IPO tracker Prime Database.
UPA government led by Dr Manmohan Singh proclaimed in its Common Minimum Programme (CMP) drafted in 2004 that “public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors” (Para 2, Page 19).
The government reiterated its promise to make common man a part of the equity success story in India when it announced in its manifesto in 2009 that “Indian people have every right to own part of the shares of public sector companies.” (Para 6, Page 16)
An analysis of figures available shows that from May 2004 to May 2011, seventeen public sector enterprises’ (PSU) IPOs and FPOs raised Rs 73,916.97 crore, out of which retail investors were allotted only Rs 17,812.26 crore.
While as the aggregate share of retail investors over the last seven year period stood at 24 per cent, it came down further in select top PSU offerings. NTPC Ltd, NDMC Ltd and Rural Electrification Corporation Ltd offered in their respective FPOs retail investor 4.87 per cent, 7.02 per cent and 7.74 per cent shares respectively.
The three PSU IPOs which gave the best share to retail investors included Power Finance Corporation (PFC), Power Grid of India, and Coal India which allotted 34.25 per cent, 34.15 per cent and 33.53 per cent shares respectively.
As regards best returns to retail investors in FPOs, retail investors were allotted maximum shares with Shipping Corporation of India, which allotted 33.82 per cent of its shares, followed by Power Grid Corporation and Engineers India, which allotted 33.71 and 33.47 per cent shares respectively.
The lowest share of retail investors in IPOs raised during the last seven years happened at NTPC which allotted 24.40 per cent shares, followed by Oil India Ltd and NHPC Ltd, with allotment of 27.27 per cent and 29.25 per cent shares respectively.
Lamenting the “inadequate” representation to the retail investor, Prime Database chairman and managing director, Prithvi Haldea said, “For the PSU offerings the government should reserve all shares only for the retail investor. In this manner the wealth created by public enterprises through domestic public resources shall be shared rightfully only with the public.” This will also be in keeping with the political manifesto which had proclaimed that every Indian has the right to own shares in PSUs, he added.
The overall share of retail investors in the PSU IPOs and FPOs issued during the last seven years would work out to be much lesser if one were to exclude the performance during the last financial year (2010-11).
During this time of a total of 27,066.59 crores raised by the government through PSU IPO and FPO format, a 33 per cent allotment was made to the retail investor. During 2009-10, however, retail investors got as little as 12 per cent of about Rs 30,756.38 crore raised.
But why is it that the retail investor has turned away from the PSU IPO market? Rajesh Jain, EVP, retail research, Religare Securities, said, “Barring one or two issues, Coal India being one of them, most of the issues didn’t leave much for investors on the table. On a lighter note, they even took the chair with them.”
This view is endorsed by Jagannadham Thunuguntla, head, research, SMC Global Securities: “The quality of IPOs is quite bad. Also, valuations are quite high. So, returns were bad.” He argued for discount mechanism to engage continually with the retail investor.
Prime Databases’ Haldea said, “A retail policy for PSU offerings accompanied by a realistic price would be an excellent opportunity to mobilize the household savings of millions of countrymen.” It would ensure a very wide distribution, reducing post-listing selling pressures, he added.
The government has fixed itself a disinvestment target of Rs 40,000 crore for this year. But the success of the offerings would depend on the pricing. Jain at Religare said, “Giving token discounts which may not last even by the time the issue is listed is meaningless. Remember IPO route is the best route that you can expect retail participation in stock markets.”
SMC’s Thunguntula agreed saying, “The IPO scene is very lackluster with the PSUs being the only hope, that too if the valuations are right.”