The first ever auction under the newly introduced offer for sale mechanism, which is expected to open on Thursday, spurred investor interest in shares of state-owned explorer Oil and Natural Gas Corporation (ONGC) hoisting them to a nine month-high. ONGC gained 3.46 per cent to close at Rs 293.35, a premium of 1.15 per cent to the floor price of Rs 290 fixed by the government for the auction.
Experts say the auction is not a short-term play for the small investors, but a mechanism deviced to get the instituitional shareholders who are looking at a one to three year time frame. Prithvi Haldea, chairman and managing director, Prime Database said, “This is not a trading opportunity. The whole mechanism is designed for long term institutional investors who will be looking to buy a significant chunk without disturbing the price.”
Though all kinds of shareholders are allowed in the bidding, small investors may get elbowed out by the big boys, say experts. “Some rich individuals may manage to get some allotment. But, retail will not come at all,” added Haldea.
"Retail (investors) will not buy. Why should they buy at a premium," asked Arun Kejriwal, Kejriwal Research and Investment Services. Over the last one year, shares of ONGC have been trading at an average price of Rs 260-270, which makes the floor price look expensive.
"Had the floor price been Rs 270 or Rs 280 it was okay but at Rs 290 it looks slightly on the higher valuation," said Ambareesh Baliga, chief operating officer of Way to Wealth. "There is a clear connection between today's movement in the stock with the announced floor price. There has been speculative buying on the counter but it has to be seen what level the auction gets subscribed on Thursday," he added.
The chief investment officer of a foreign fund house, who did not wish to be named, said, “ONGC is purely a play of subsidies. Since, there are indications that fuel prices will be raised this week, all oil and gas related counters have moved up.” Moreover, he added, it is most opportune time from the markets perspective to come up with such an auction at a time when the government is running far behind its proposed disinvestment target.