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The Indian mineral story is increasingly attracting foreign investor interest. The state-owned mineral entities such as Coal India Ltd and NMDC have witnessed an increase in foreign institutional investor (FII) shareholding in recent months.
Coal India, which listed its shares on November 4 last year, saw a two-third increase in FII shareholding in two months to 5.54 per cent in the quarter-ended December 2010.
The Government divested 10 per cent stake in Coal India, the world's largest producer, through an initial public offer (IPO) in mid-October. As on October 30, the company had a FII shareholding of 3.32 per cent.
Similarly, iron-ore producer NMDC Ltd saw its FII shareholding increase by a fifth to 0.57 per cent for the quarter-ended December against 0.47 per cent in the September quarter. In the quarter-ended March 2010, the FII shareholding in NMDC stood at 0.15 per cent.
Analysts attribute the trend of increasing FII holding in mineral PSUs to the long-term prospects offered by the companies, which they feel are undervalued. They also attributed it to the shortage of the commodity, especially coal.
“Lot of funds are buying into Coal India in the past two to three months. The stocks are undervalued as the recent global increase in prices of coal and iron ore have not reflected in the price movements of these stocks,” said Mr Bhavesh Chavan, senior research analyst at Angel Broking Ltd.
Also, these companies have a sound business model. As they are Government owned, they are unlikely to face corporate governance issues, which is how the FIIs like it, he added.
National Aluminium Company has also seen a marginal increase in FII stake to 4.31 per cent during the December quarter over the September quarter. Interestingly, Sesa Goa, the largest private sector iron ore producer and exporter has seen a drop in FII holding to 24.37 per cent from 26.57 per cent in September quarter.
“The mineral sector, especially coal and iron ore, holds lot of promise. Moreover, the sector is the only one that has no direct impact of a rate hike or inflation,” said Mr Kishore.P. Ostwal, CMD, CNI Research.
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