Mumbai: The share of Engineers India Ltd rose by 20% on Friday, the upper limit for an intraday rise for this stock set by the capital markets regulator, on news that the government will issue bonus shares ahead of a proposed 10% stake sale to the public. The shares closed at Rs2,079.70 apiece on the Bombay Stock Stock Exchange (BSE), gaining 46% in one month.
The stock of the state-owned engineering services provider to the oil and gas industry is not the only one to stage a dramatic rise in recent times.
Investors have been buying state-owned company shares as an estimated Rs30,000 crore disinvestment programme has boosted expectations of reforms and increased institutional participation. But there are sceptics who say partial divestment of government stake alone does not change the profile of a company as there will not be any change in the management and loosening of government control.
Two out of every three stocks that make up the 48-firm public sector units’ index of BSE have outperformed the benchmark Sensex in the past month. Hindustan Copper Ltd gained the most, up 68% during this period. NTPC Ltd, which is likely to be the first firm whose shares will be sold as part of the divestment programme, gained 11.67% while NMDC Ltd, another candidate that has got the cabinet nod for a share sale, rose 18%.
BSE’s PSU index gained 7.97% in the past one month. In comparison, the Sensex’s rise has been 4%.
The government’s disinvestment programme has raised investor hopes of policy changes or reforms benefiting the firms on the block or the sectors that they are a part of, said analysts and fund managers.
The government hopes to raise at least Rs30,000 crore by selling more shares of firms already listed on the exchanges such as NTPC, NMDC, Engineers India and Steel Authority of India Ltd, while other companies such as Bharat Sanchar Nigam Ltd and Satluj Jal Vidyut Nigam Ltd are planning to sell shares for the first time.
“There are expectations of beneficial policy changes, which will bring in more investors and a lot of noises being made,” said Deepak Jasani, head of retail research at HDFC Securities Ltd.
For instance, the government is considering a proposal for NTPC to sell 10% of its output at the market price, The Economic Times reported recently. This, some analysts reckon, could boost the company’s profits as much as 40%. On Thursday, the government announced a bonus issue in the ratio of two for every share held of Engineers India, apart from a special dividend.
“One reason why these shares are rising is obviously the positive sentiment,” said Sameer Kamdar, chief executive officer of the ASK Group’s proposed asset management arm that has been awaiting regulatory approval.
“Secondly, it opens the door for institutional investors, many of whom will consider investing only if the free float is above a certain limit.”
Free float is the number of shares available for trading and excludes promoter holding and locked-in shares. The free float of 13 among the 48 listed government firms is less than 10%. The government has a 99% stake in Hindustan Copper and this partly explains its dramatic rise in the past month. Similarly, the government has a 98.38% stake in NMDC.
There are some analysts who don’t buy into the reform/free float story and believe that it’s the buzz created by merchant bankers that is driving up the stock prices.
“When has increasing supply ever increased share price?” questioned a fund manager, who wanted to remain anonymous, citing company policy about talking to the media.
He said that this part of the usual buzz that happens in the market before a share sale and cited the case of NHPC Ltd, which hit the market in August. At that time, there was news floating in the market that the Central Electricity Regulatory Commission will allow return to be paid on equity that is deployed in work under progress. This helped push up the price of the NHPC issue to the upper end of its price band at Rs36, said the fund manager and a head of research at a local brokerage, who wanted to remain unidentified. After its listing in September, NHPC rarely closed above Rs36. On Friday, it closed at Rs35.30.
Ashwin Ramarathinam contributed to this story.