Things OFS investors need to keep in mind

Retail investors need to look at company fundamentals, discount being offered before investing

The offer for sale (OFS) season is on. In the next few weeks, the government is likely to offload stake in quite a few public sector undertakings (PSUs) such as ONGC, Nevyeli Lignite and Coal India.

Retail investors — those who bid up to Rs 2 lakh in an offering — need to keep a few things in mind before they participate in the government's disinvestment through an OFS.

First, investors need to be choosy about which OFS to invest in, making sure the companies are fundamentally strong and well-managed.

They also need to look at factors such as the discount and the floor price of the issue. Retail investors are typically given a discount of 5% in these offerings. Investors also need to track the change in price of the company two to three months before the OFS date.

First time investors need to make sure they have a demat account and permanent account number (PAN) to participate in the OFS. Investors can use their online trading accounts such as ICICI Direct and Kotak Securities by placing their bids under the OFS section of their respective broking websites. There may be instances, however, where investors may not be able to place their bids online directly and will have to get in touch with their respective brokers to complete the transaction.

Investors have to pay the amount to brokers in advance. The broker will in turn put in his bid allotment, and the shares will get allotted in the investors' name. Any refund will be returned by the broker. Since the settlement is done through the clearing houses, all transactions have to be carried out through the broker as the stock exchanges recognize only the broker.

The good news for retail investors is that to encourage participation of small investors in PSU disinvestments, the government has decided to hike the quota reserved for retail investors to 20% for the forthcoming stake sales in firms such as ONGC and Coal India. 

Market regulator Sebi has now allowed retail investors to bid at the cut-off price, which does away the need for price discovery for retail investors as they can simply bid at the cut-off price and be assured of an allotment.