Govt's Suuti stake sale set to evoke good FII interest

I-bankers rule out possibility of a foreign player acquiring a controlling stake in ITC, L&T

The proposed sale of government shares in ITC, Axis Bank and Larsen & Toubro (L&T), held under the Specified Undertaking of Unit Trust of India (Suuti), is expected to sail through smoothly. Fund managers and brokers said the shares were likely to be lapped by institutional investors, including foreign ones, whose appetite for Indian companies with healthy earnings’ prospects has been voracious.

“There is a lot of appetite among investors for these stocks as these are good companies with good long-term prospects. These stocks are very liquid and there is also a lot of foreign institutional investor (FII) interest in these,” said Rikesh Parikh, vice-president, equities, Motilal Oswal Securities.

Suuti, the restructured unit of the UTI, holds 23.58 per cent stake in Axis Bank, 11.54 per cent in ITC and 8.27 per cent in L&T. The total value of government’s holdings in these was Rs 47,500 crore as on Friday. The stake sale could help the government reach its divestment goal of Rs 40,000 crore for FY14.

Last month, the government had approved Axis Bank's proposal to raise the foreign investment limit in the lender to 62 per cent from 49 per cent.

Brokers said the bids in these sales were likely to be higher in Axis Bank and ITC than L&T, bogged by concerns on its outlook. But, L&T may interest long-term foreign institutional investors, such as pension funds, said brokers.

Investment bankers and industry officials have ruled out the possibility of any foreign player acquiring a controlling stake in ITC and L&T. Bankers said a reason for the delay in the sale of stakes in ITC and L&T have been worries about covert acquisition attempts. ITC was a target of such a takeover attempt in 1996, when British American Tobacco, the single largest shareholder in the company, made a bid to take control. But, the attempt was not successful after the government intervened. L&T was also a target of such attempts in the late 1990s.

Analysts said the government will not need to price the share sales at a steep discount. They expect the shares to be under pressure in the near term.

“Initially, there will be some correction in the stock prices because investors would look at offloading the shares first and buying it during sale,” said Parikh.  Analysts expect the government to lap Rs 14,000 crore. Market participants expect the sale to be done in tranches, to avoid huge liquidity pressures on the market. “Liquidity would get sucked depending on how the government goes about the sales. However, there will not be a huge impact on the market,” said Dipen Shah, senior vice-president, research, Kotak Securities.