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Indian capital markets haven’t seen so many large offerings within such a short period. As markets typically correct a little during mega offers, expect some in the broader indices.
The biggest offering so far was Coal India’s Rs 15,475-crore initial public offering in October 2010. At that time, within a fortnight from mid-October, the Nifty had corrected 2.6 per cent. The case was similar at the time of ONGC’s Rs 12,767-crore offer for sale (OFS) towards the end of February 2012 — the Nifty corrected about four per cent in a week to the day of the OFS. Likewise, the broader indices corrected about nine per cent at the time of NTPC’s mega offer (through a fortnight to the date of the offer).
However, there have been exceptions. For instance, during NMDC’s follow-on public offer (FPO) of Rs 9,950 crore in early March 2010 and PowerGrid’s Rs 7,500-crore FPO in November 2010, the markets had seen gains of three-five per cent. However, their offer sizes were relatively smaller compared to those of Coal India and ONGC.
Now, with the government looking to offload a five per cent stake in ONGC, worth Rs 15,147 crore according to Wednesday’s closing price, in 2014-15, the stock could see some selling, say analysts. So will the Coal India stock. In fact, since reports of Coal India’s expected offer surfaced, the stock has fallen three per cent; through three sessions, it has fallen about five per cent. Notably, the country’s largest lender, State Bank of India (SBI), on Tuesday said its committee of directors had approved a share sale of up to Rs 15,000 crore, likely through a public or rights offering, or sale to institutional investors. However, its timing hasn’t been decided; the management says it is an enabling move and SBI’s offer will hit the market at an appropriate time.
The government isn’t alone. Many private companies are considering raising funds. For instance, Torrent Pharma plans to raise Rs 3,000 crore by issuing fresh equity shares through a qualified institutional placement or depository receipts. On Wednesday, HDFC Bank received Cabinet Committee on Economic Affairs’ approval to raise up to Rs 10,000 crore from foreign investors. Tata Motors has announced plans to raise Rs 7,500 crore through a rights offer.
Though a rights offer is meant for existing shareholders, experts say typically, shareholders either put in fresh money or liquidate their existing holdings (in the company or shares of other companies) to subscribe to such rights issues. The case with other offerings isn’t significantly different, except the fact that new investors also participate. But any significant fresh supply of paper in the market tends to exert some pressure on the broader indices.
Though the exact timing of the offerings of the private companies isn’t known yet, any bundling of public and private companies could put pressure on the markets in the short term. For one, the offers mentioned earlier would mean combined fund-raising of Rs 78,000 crore, and many more are in the offing from public (especially banks) and private companies.
The pressure on markets would be despite the strong flows from foreign institutional investors (FIIs) and domestic investors India has seen in recent months. Also, market valuations aren’t cheap anymore, with the price-earnings valuations higher than their long-term average of 16 times, based on the 2015-16 estimated earnings of Rs 1,848 for the BSE Sensex. Domestic earnings haven’t been exciting, either. In fact, the earnings of quite a few major companies for the December quarter have been disappointing. And, any pick-up in earnings growth isn’t expected before a couple of quarters.
There are concerns at the global level, too. All these could lead to pressure on Indian markets in the near term.
