With commodities and energy companies under stress and global investors showing little interest in them, the government is now looking to line up firms from the financial and infrastructure segments where there is greater investor interest. In a recently-concluded roadshow for the government’s upcoming disinvestment plans, officials received feedbacks that global institutional investors were less keen on subscribing to power, energy and commodity stocks. Their interests lay in cashing in on the India growth story by participating in the infrastructure and the financial sectors.
“Global investors place India on top when it comes to investing in emerging markets and within the country they are very keen on infrastructure and financials. For investors whose policy allows them to invest directly, their first preference is to participate directly/straight into infrastructure. There are others who are entering through the debt market,” said a senior government official, who was part of the roadshow to the US, UK, Singapore and Hong Kong earlier this month. As the government prepares to divest its holding in companies in these sectors and is fast-tracking the process for the same, retail investors, whose participation in equities has traditionally been low, may also prepare themselves in line with the large institutional investors to make the most of the stake sale in high quality banking and infrastructure firms.
Also, since the Centre is still far from meeting its disinvestment target for the year, an improvement in market conditions may see the Centre line up the companies. It may be a busy second half in terms of the number of firms that come for the stake sale and investors will have to be careful and pick a firm after due diligence.
Having raised Rs 12,701 crore through sell-offs this year and a little over five more months left for the Centre to meet its steep disinvestment target of Rs 69,500 crore, the Department of Disinvestment (DoD) has fast-tracked the approval process for firms across sectors where stakes can be sold.
This is being done to keep the companies ready with all approvals so that they can hit the market in short time, once the conditions improve. In September, finance minister Arun Jaitley, too, had enthused confidence in meeting the disinvestment target for this fiscal and said that the government had moved much faster in last two months but markets have been in somewhat turmoil. Earlier this month, officials from DoD, Ministry of Power and NTPC had gone for roadshows in four countries.
While a government source hinted that going on a roadshow does not mean the Centre is looking to sell stake in a firm in this market, he added, “It was also to get a sense on the sectors they (investors) are keen on investing. We have fast-tracked the process of meeting intermediaries and also the process of cabinet approvals. We want to be ready and then wait for markets to improve.” In another move that is aimed at keeping the investor updated about the firms, the government has told PSUs to conduct investor outreach programmes on a regular basis. “While we are asking PSUs to tell us various investor outreaches that they have done, we are also telling them to speak to investors regularly and also meet important investors face-to-face. Why should they do it only when the government is looking to sell stake,” the official said.
Retail investors must also take note that as per past experiences where a PSU stock up for divestment used to witness a sharp decline in its share price ahead of the stake sale, the government is now looking to maintain better secrecy about the company coming up for disinvestment. It will make its plan public only a few days before the date of disinvestment. It is therefore important for retail investors to keep a tab on the market and the announcement to make use of the investment opportunity.
Also, going by the plan, the DoD is now taking up several companies at a time for processing their sell-off details. In case of Indian Oil Corp, the department concluded the stake sale within 10 days of selecting the merchant bankers and also did not conduct any roadshows. While the government has already conducted roadshows for NTPC and Bharat Electronics Ltd, others that are likely to come up are Engineers India, NALCO and Hindustan Copper.
Reports also suggest that the government is looking to list all CPSUs by March 2017 and the companies that are expected to go for fresh listings include – HAL, ONGC Videsh, Nuclear Power Corporation and BSNL, among others. This only shows that the next 18 months might witness a lot of movements on the disinvestment front and some good investment opportunity would come up for investors.
What should you look for?
While the government offers some discount to retail investors over the market price of the company that comes for disinvestment, experts say that investors should carefully pick the firms. Companies facing environmental issues or operating in sectors that need major reforms can be avoided till the time that such issues are sorted.
While sectors such as power are facing reform issues, in many cases they are necessary in individual companies and therefore investors should look at both sector and company specific reforms. Even some public sector banks that have suffered from issues of non-performing assets and have taken steps to resolve them but are still trading at attractive valuations may offer a good opportunity to investors. Also before investing into the stock, investors need to take a look at the foreign Institutional Investor (FII) interest in the stock at the time of disinvestment. A higher FII interest will mean better prospect for the stock as they do their due diligence before investing.