Revised Sebi rules to boost action in primary market
Given how bullish foreign investors seem to be on the India story and how the capital market regulator has rewritten rules to rejuvenate the primary market, equity fund-raising by companies might touch new highs this year. On a rough reckoning, more than R1.25 lakh crore worth of paper is waiting on the sidelines in the form of fresh issuances and divestments. If corporates do manage to pick up such a large amount, it would beat the record R1.04 lakh crore raised in FY 2008 — the year the Sensex came close to touching 21,000 in January 2008. The next big round of fund-raising happened in FY10, when Indian companies mopped up R94,848 crore.
The merchant banking fraternity is confident the flows will be more than adequate to absorb the deluge of equity. Edelweiss Capital chairman and CEO Rashesh Shah estimates inflows of funds into the stock markets of as much as R2 lakh crore. “If LIC invests close to R50,000-60,000 crore and FIIs bring in some $15 billion or around R1 lakh crore, that alone is R1.5 lakh crore,” Shah points out. V Jayasankar, senior ED and head of equity capital markets, Kotak Investment Banking, is confident Indian markets will see foreign flows of $30 billion this year, of which half could be absorbed by the primary markets. “In the last two years, India received inflows of about $20-25 billion each year even when the economic environment was challenging. We feel it is healthy if some flows go into the primary space,” he says pointing out that too much money chasing a limited number of stocks could lead to an asset bubble.
Action in the primary market is likely to pick up now that the Securities and Exchange Board of India (Sebi) has stipulated a 25% minimum public shareholding norm for state-owned firms; close to three dozen PSUs would need to sell shares which, at current market prices, could fetch the government approximately R60,000 crore.
Sebi has also allowed an additional 100 companies to use the offer for sale (OFS) route to sell shares, a move that may see more shares sales since the OFS mechanism is considered transparent and facilitates price discovery. Moreover, now that companies with a post issue capitalisation of less than R4,000 crore need to dilute 25%, or R400 crore, whichever