More than 200 companies may need to sell at least $13 billion of shares over the next 12 months, analysts led by Nilesh Jasani wrote in a report. Some $15 billion of equity offerings are already planned, they said. All companies must increase the public holding to at least 25 percent by selling at least 5 percent a year, the government said on June 4.
“Implementation could prove to be a substantial drag for the market,” the analysts wrote. “Without a rampant bull market supported by massive unprecedented inflows, the rule- modified primary market demand for funds cannot be met.”
The Bombay Stock Exchange’s Sensitive Index has dropped 4.9 percent this year, after soaring 81 percent in 2009, the biggest rally in 18 years. The equities have retreated in 2010 as India’s central bank increased borrowing costs to curb the fastest inflation rate among Group of 20 nations, and the deepening European sovereign-debt crisis raised concern the global economic recovery will slow.
NTPC Ltd., the nation’s biggest utility, and Reliance Power Ltd., owned by billionaire Anil Ambani, are among a sixth of the top 3,000 listed Indian companies that may need to sell about 2.5 trillion rupees ($53 billion) of shares over coming years to comply with the new rule, according to data compiled by Bloomberg.
Companies seeking to raise their public holdings may see their shares carrying a “valuation discount,” while those planning to sell stock in stages could face the risk of low demand in initial offerings, according to Credit Suisse.
The best foreign institutional investor inflows over any 12-month period were $25 billion, according to the Credit Suisse analysts, who were third-ranked for India research in Institutional Investor magazine’s 2010 Asian poll. They didn’t state the period of the inflows.
The minimum public float is being increased for all companies as Prime Minister Manmohan Singh’s government seeks to raise a record 400 billion rupees this year from selling equity in Engineers India Ltd., Steel Authority of India Ltd. and other state enterprises to help cut a budget deficit.
The previous rule allowed companies with a free-float worth at least 1 billion rupees to have as little as 10 percent traded, while there was no minimum for state-run enterprises.
Overseas investors sold $2 billion more of Indian shares than they bought in May, the most since October 2008 following the collapse of Lehman Brothers Holdings Inc., according to stock exchange data.
Foreigners have bought a net 215 billion rupees ($4.6 billion) of the stocks so far this year, according to the market regulator. Inflows from overseas reached a record 834.2 billion rupees in 2009, after a record outflow of 529.9 billion rupees in 2008.
To contact the reporter on this story: Shiyin Chen in Singapore at firstname.lastname@example.org