The Securities and Exchange Board of India (Sebi) is likely to turn down the department of disinvestment’s request to halt trading of shares of public sector companies on the day the government auctions stocks of such companies, as the market regulator is afraid of investor sentiment getting hurt, sources told FE.
The department had also written to the Sebi requesting cutting down the notice period for the offer for sale (OFS) to one day from two and put circuit breaker on the previous day of the share sale to prevent hammering of stocks that derail the government’s share sale programme.
While the Sebi is reluctant to make any changes to the existing OFS mechanism, officials are still hopeful that the regulator will cut the notice period.
Sebi is of the view that suspension of trading does not augur well for the image of the country as an investment destination at a time when India is courting foreign investors to put their money on India growth story, sources said. The market regulator has also pointed out that at any point of time, investors should not be deprived of the exit option, sources said.
The department had sought suspension of trading as it creates confusion among retail investors whether to buy from secondary market or bid for shares in OFS, hurting their participation.
The volatility on the days leading to auction was evident when government sold a 10% stake in miner Coal India to raise R22,557 crore even as the stock tumbled 8.6% in the week leading to the sale on January 30. Similarly, Steel Authority of India shares lost about 7% in the week ended December 5, the day the government sold 5% to raise R1,719 crore.
Officials cite hammering of the stocks just days ahead of share sales as one of the reasons for the government not meeting disinvestment revenue targets in the last couple of years.
Despite missing the target in FY15, the fifth year in a row, the government has set a stiff disinvestment revenue target of R 69,500 crore in FY16.
Out of that, R41,000 crore is projected from disinvestment of minority stakes in a clutch of state-run firms and R28,500 crore from sale of government holdings in private companies, sale-off of loss making PSUs and strategic divestment in profitable state-run firms.
The non-tax revenue sources of revenue such as disinvestment of government shares in firms and auction of telecom bandwidth are critical for the government to bring down fiscal deficit to 3.9% of GDP in FY16 from an estimated 4.1% in FY15.