Too much, too quickly

With an avalanche of shares being offloaded, it's no wonder that the stock market is nervous. An estimated Rs 20,000 crore worth of new paper will hit the market in the next five weeks, thanks to the government's determination to push through a massive divestment programme at the fag end of the financial year.

The bunching of issues, the fact that many of them are from the energy sector, and that they are all being offered in the domestic market are factors weighing on the bourses.

Most of the attention is focused on the outsize ONGC issue which, at around Rs 11,000 crore, is the largest offer so far in the Indian stock market.

Nevertheless, informed opinion is confident about the issue going through without a hitch, primarily because institutions that want an exposure to India cannot afford to ignore it on account of the enhanced weight of the stock in benchmark indices. The valuation too is attractive, compared to global peers.

Most importantly, the flood of foreign funds into the Indian market continues unabated, with recent data showing that India country funds alone have received more than $ 600 million of new money so far this year.

That's apart from India's share in emerging market and global funds. Moreover, new issues have been avenues for bringing new money into the market, as many investors who normally do not invest in stocks are lured by the prospect of easy pickings. Investors' appetite has been whetted by the ease with which issues have been oversubscribed.

However, the government could have gone about the divestment exercise with greater finesse. It could, for example, have spread them out over at least six months, starting in late 2003 or continuing the exercise into the next fiscal.

Floating a portion of the issues abroad would also have taken some of the pressure off the domestic market. The Asian IPO market has been red hot since the last quarter of 2003, and the Chinese government has been very successful in selling stakes in several companies, without any discernible effect on the stock markets either in mainland China or Hong Kong.

The appetite for emerging market equities is very high globally and selling Indian issues abroad would have posed no problem.

There's little doubt that, because of the bunching of the offerings, many investors have booked profits to enable them to subscribe to the new issues.

Mutual funds, for instance, have been net sellers in February, a consequence both of redemptions by investors and mutual funds wanting the cash to invest in new issues.

Having said that, the nervousness in the market seems to be overdone, and it's possible that bears have found in the IPOs an excuse to hammer prices down.

If the market is able to digest these offers without much difficulty, the strength of this market will have been demonstrated beyond doubt. So, despite the skittishness of the market, there is reason to be confident about its general health.