The Hindu Business Line : Govt divestment plans a positive step, say marketmen

THE Government decision to sell minority stake in profitable PSUs is seen as a positive move by the stock market players. Such sales will result in higher floating stocks in the Indian market, a factor that attracts foreign investors.

Besides, disinvestment in profitable PSUs is expected to further boost the current bullish trend in the market.

The move is also seen as non-controversial on the political front as it will help raise funds without the Government losing its control of these companies.

Heads of several broking firms agreed that lower Government stake will increase floating stock of PSUs and this in turn will attract huge inflows from FIIs.

"Foreign investors prefer to invest in countries with high liquidity and they prefer to invest more in countries with higher floating stocks," said a top official of a foreign broking firm.

He said in the past, one has seen India's weightage in Morgan Stanley Capital International (MSCI) emerging market index going up with higher floating stocks.

"If the Government dilutes its stake in listed PSUs, India's weightage will further go up which in turn will attract more FII money".

However, others believe that if the Government were to attract more retail investors to the equity market, the offer price should be attractive. Some experts feel that if the Government has to attract large retail investors to the equity market, pricing of the issue has to be right.

"Previous Government decision to give just five per cent discount to the offer price was not a good option for the retail investors. Five per cent is a very small discount considering the volatility in the market and much higher discount should be offered to the small investors," said Mr Prithivi Haldea of Prime Database, an independent primary market-monitoring firm.

He said issues of unlisted companies have offered better returns to the investors compared to public offering by listed companies.

Earlier last week, the Government had decided to sell minority stakes in both listed and unlisted profitable public sector enterprises without ceding management control by retaining a minimum of 51 per cent.

The DSP Merrill Lynch Managing Director, Mr Amit Chandra, feels the disinvestments in profitable PSUs will attract retail investors to the capital market and widen investors base.

Mr Raamdeo Agrawal, Joint Managing Director of Motilal Oswal Securities, said: "It is a good effort to mobilise funds without creating controversy".

Mr Alok Bahl, Head-Institutional Sales, Fortis Securities, said: "Disinvestment in PSUs sends positive signal to foreign investors towards India. It will attract more funds from international markets".

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