By Ruma Dubey
Naturally, no one expected the Offer for Sale (OFS) of Rural Electrification Corporation (REC) to turn out into such an overwhelming success.
For the past couple of years, it has been seen that PSU offers go abegging; even when stocks are issued to retail investors at a discount, there are no takers and it is LIC which always comes to the rescue. The same story was expected this time too but REC too everyone by surprise. The Rs.1500-crore issue was oversubscribed some 5.5 times. Apart from the overwhelming response from institutional investors, retail investors who till now were mute observers on the sidelines, put in bids over 9 times the portion reserved for them.
This overwhelming response left everyone bewildered. What had changed suddenly? Even previously, retail investors were almost always offered the same 5% discount over issue price. So it was most certainly not the lure of the discount. And institutional investors too – they did not get any discount, yet their portion too was oversubscribed.
The only explanation is the success of Coal India. That OFS was on 30th Jan and retail investors then were not as eager – their portion was undersubscribed. And institutional investor portion was oversubscribed 1.1 times. The floor price was Rs.358/share which was then at a discount of 4.5% to the ruling price. And since then, the stock price has consistently been over the issue price, over Rs.380. In fact today it is at Rs.385. Thus the gains which institutional investors made on Coal India in a short term lured the investors in droves towards REC this time around.
Another reason – retail investors, on a majority follow a herd mentality, they do what anyone else who is successful does. So this time in REC, apart from nursing the grouse of having missed the bus in Coal India, they saw that institutional investors had lapped up their portion and more within the first hour of the OFS opening. Obviously, they felt that it could be a repeat of Coal India story and decided to follow them. It is this huge ‘blind’ following which led to massive retail participation.
But then the big question – why did institutional investors buy? Simply because it was priced attractively. Earlier too PSU issues are priced at a discount but now the chances of making gains are much higher due to the underlying market sentiments. Ultimately, it is all about pricing it right and when we say pricing it right, we mean leaving enough gains on the table for the investor to enjoy. What is the point of investing in an IPO which is either fully priced or is priced way ahead of its fundamentals?
The success of REC comes as a major encouragement to the Govt’s divestment plan. It has targeted Rs.41,000 crore from PSU stake sale in this fiscal. The Govt would like to strike the iron when it’s hot and we might soon see the OFS of PFC hit the floors. Others lined up this fiscal are – Dredging Corp Of India, Indian Oil, Bharat Heavy Electricals, National Aluminium, NMDC, MOIL, NHPC and Oil & Natural Gas Corp (ONGC). Others also lined up are Neyveli Lignite, SJVN, Hindustan Copper, MMTC and India Tourism Development Corp. Let’s see if they all turn out to be “RECs”!