COAL INDIA AND BEYOND....

The government had set a fiscal deficit target of 5.5% for this year. But after the recent events in the market viz., 3G spectrum auctions and the IPOs of C.I.L. (coal India limited) and other Public sector undertakings to follow, the government may well achieve a lot better than that. The coal India IPO received such an overwhelming response from the investors that it baffled even the most optimistic. Such a response from the investors has set the stage for a very eventful 2011 in terms of IPOs and FPOs.
Initially the move of the government of pricing the share at 225-245 per share received a mixed response. While some were very happy from the price others were finding it to be too high. But then the price turned out to be just right attracting huge amount of bids. While Coal India intended to make 15,450 crore from the IPO, it received applications for 2,40,000 crores, 15 times of what it asked for. The government is hopeful of achieving its target of 40,000 crores this fiscal, of which it has already reached the half-way mark. Now, the government is contemplating disinvestment plans for 3 blue-chip companies viz. SAIL, IOC and ONGC. It may happen in the last quarter of this fiscal year.
While the correct and attractive pricing did the trick for government in this IPO, the pressure will be on the government to price the coming IPOs attractively and still correctly. This kind of fair pricing by the government will help in luring the investors who have been shying away from the market for so long as majority of IPOs in the recent times listed below the issue price and some now also quoted below the issue price. As per the Crisil Equity Research estimate there are at least 179 companies listed in the stock exchange where the float is less thn 25 % mark. At current prices, these firms may have to raise Rs 1.6 lakh crore if promoters sell their holdings and if they do so through sale of new shares, they may raise Rs 2.1 lakh crore, says Crisil’s estimate.
For a company divesting more than 25% of its share, 3 kinds of investors may bid for it. These may be Qualified Institutional buyers(QIB) including mutual funds and FIIs, High Networth individuals and Retail investors. They have a quota of 50%, 15% and 35% respectively. This is especially good for retail investors. SEBI has hiked its cap on investment from Retail investors from 1 lakh to 2 lakhs. For investing, the investors should mainly look at the P/E ratio of the company. If it is too high, then it means that the shares are priced high with respect to the earnings of the company. So IPO space is set for lot of action in the coming days but at the same time retail investors will have to be lot more cautious before they choose to invest on an IPO or FPO.