Reviving the Indian primary market

Jun 04 2014, 04:49 IST
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SummaryTo drive investor sentiment, the government can start with an increased focus on disinvestment and strategic sale of PSUs

The election of a stable, development-focused government has raised hopes across all quarters including with the issuers as well as investors. Courtesy economic slowdown, coupled with paralysis of policy and implementation, the primary capital market has been comatose. The last fiscal witnessed just one main-board IPO, raising a modest R919 crore, the lowest ever. What has been very worrisome is that because of poor sentiments, public issues worth over R60,000 crore, which had obtained Sebi approval, did not dare enter the market.

With expectancy of economy regaining its rightful course, the secondary market has already shown buoyancy. Typically, if both sustain, the primary market will get the kick-start, and can rise to new highs. The new government must take the lead.

Disinvestment: The new NDA government should repeat the performance of the previous one in this regard. PSU issues can be the instrument for reviving the sentiments. Disinvestments had gone off-track in the recent years. To bring down the fiscal deficit, the objectives of disinvestments—enlarging the capital market to bring in more household savings into equities, reducing volatility caused by low float, bringing about more transparency and better corporate governance in PSUs subsequent to listing and bringing in the much-needed money to the exchequer—were given the short shrift. Ingenious means were devised last year, including buybacks, special dividends, cross-holdings, sale to state undertakings et al. The only good news was a partial sale of the stake held by SUUTI in Axis Bank.

PSU IPOs, too, have been relegated completely to the backburner. The last such IPO was the

R125 crore one from NBCC, in March 2012. Since then, there have been many reports on the impending IPOs of Rashtriya Ispat Nigam and Hindustan Aeronautics Limited, among others, but little has actually materialised.

The new government should bring its stake down to 51% in all listed PSUs and PSBs, and in the interim, mandate all of them to comply with the Sebi guideline of minimum 25% public shareholding, as is the norm for the private sector. The government should also immediately sell off its stake in ITC, L&T and Axis Bank; there is simply no justification for this more than decade-old holding to continue, especially in a non-strategic cigarette company. Stake sale in Hindustan Zinc and Balco, which can collectively raise over R22,000 crore, should be prioritised. These measures shall bring the much-needed money for the exchequer. In

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