| THE year 2007-08 was
one of the best years in the history of the Indian equity market. The
BSE Sensex gained more than 50% during the year — surging from 13,000
levels at the beginning of 2007 to a high of 20,000 at the end of the
year.
This offered many opportunities for companies seeking to scale up their
operations. Tapping the primary market seemed to be the best available
option. The scale of fund-raising was so massive that 17 new companies
joined the ET500 list simply on account of their initial public offers
(IPOs). Apart from the usual private sector players which raised funds
for expansion, several public sector biggies were also in the spotlight.
Companies like Power Grid Corporation (PGCIL), Central Bank of India and
Rural Electrification Corp (REC) came forward to join the ‘gang
of publicly listed players’.
Though going public can be another fund-raising activity, it is a big
step for PSUs. Up till now, they were entirely dependent on internal accruals,
debt or the government’s budgetary support to fund their growth.
This restricted their financing options and put them in a disadvantageous
position with respect to their private sector peers. However, given the
buoyant stock market situation in FY08, PSUs had access to almost unlimited
amount of equity capital.
The listing of these large PSUs, many of whom dominate their respective
industries, is good news for equity investors as it has provided them
with greater choice to diversify their portfolio. Private sector companies
are not allowed to invest in certain sectors such as defence and nuclear
power. Hence, if investors want to cash in on the growth opportunity provided
by these sectors, they can invest in some of the large PSUs, which were
earlier off-limits for retail investors. For example, IPOs such as PGCIL
and REC have opened up new growth sectors for investors, such as power
transmission & distribution and rural electrification.
Not only are these PSUs highly profitable, but many of them also reward
their shareholders with higher dividends than their listed private sector
peers. For instance, Rashtriya Ispat Nigam is one of the largest primary
steel producers in India. The Airports Authority of India’s net
profit is likely to top Rs 1,000 crore for FY08, surpassing many large
listed players. But these companies are not accessible to investors currently
as they are not listed. Other such hidden gems include Coal India and
its various subsidiaries, General Insurance Corp (GIC), Life Insurance
Corp (LIC) and four national general insurance companies, among others.
The listing of several PSUs in FY08 has also had a positive rub-off effect
on the stock market. The market depth has increased due to the inclusion
of these PSUs, which has improved price discovery, lowered volatility
and reduced the incidence of market swings. For instance, within a few
weeks of its listing, PGCIL made it to the NSE Nifty index.
These new listings also spell good news for ET500, which represents the
best of India Inc. The previous ET500 editions excluded some of India’s
biggest companies as they were not listed, thus skewing the rankings towards
private sector companies. The current edition of ET500 includes several
large PSUs for the first time, making the rankings more holistic and a
better representative of Corporate India.
Currently, PSUs account for nearly 24% of BSE’s total m-cap. The
figure was negligible around a decade ago. And if all PSUs ever get listed,
the composition of major equity indices, including the Sensex and Nifty,
may change drastically. The new entrants in ET500 have also created a
record of sorts by raising a whopping Rs 16,426 crore via their IPOs.
This shows the massive scale at which each company raised equity capital
to fund its growth plans. Almost every other IPO was over-subscribed by
a minimum of 2-3 times. There was so much hype that even undeserving candidates
got undue advantage. However, surprisingly, even these issues managed
to list at a 15-25% premium over their respective issue prices.
From a company-specific point of view, the biggest issue of the year
was by PSU major PGCIL, which is responsible for inter-state transfer
of electricity. In fact, within a few weeks of its listing, PGCIL was
able to secure a position in the list of Nifty 50 companies. The second-biggest
issue was by Mundra Port and Special Economic Zone. It
raised Rs 1,771 crore.
Though a majority of these IPOs have shed almost 30-50% of their gains
since listing, the fund-raising frenzy has opened the doors for many more
public sector companies. The government is now keen on listing other large
publicly-held companies, including BSNL and Coal India. Going ahead, if
larger players like LIC, National Hydroelectric Power Corp, Oil India,
National Aviation and Hindustan Aeronautics get listed, who knows, they
may very well grab the top positions in ET500 by virtue of their gargantuan
m-cap.
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