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IRCTC shares opened at  ₹644 and hit a high of  ₹743 on the BSE on Monday (Mint file)
IRCTC shares opened at 644 and hit a high of 743 on the BSE on Monday (Mint file)

Opinion | The lure of PSU shares

  • The IRCTC had set an issue price of 320 in its nearly 645-crore IPO of equity, but its share listed at double the price

The Indian Railway Catering and Tourism Corporation (IRCTC) has made a stunning debut on the bourses. The state-run company had set an issue price of 320 in its nearly 645-crore initial public offering (IPO) of equity, but its share listed on the stock exchanges at double the price. It opened at 644 and hit a high of 743 on BSE today. While it’s premature to see this as a broad revival in primary market sentiment, it does have something to say about the government’s disinvestment programme.

It’s possible that IRCTC’s success is plainly a function of its own prospects. It has a monopoly on high-volume railway services such as online ticketing, railway hospitality and catering, the last of these accounting for the largest share of IRCTC’s revenues. It is also the main supplier of packaged drinking water to the railway network and controls half the bottled water sold on stations. Little wonder that investors see profits ahead. The IPO was heavily oversubscribed—by more than 110 times. This being so, the government appears to have shortchanged itself on the money it could have raised. In hindsight, it could have priced its IPO much higher.

Arriving at an offer price is always tricky, but as the government gets ready to offload shares in other public sector businesses, we should hope it gets its offer prices right. The government aims to raise over 1 trillion this fiscal year, and perhaps it should raise that target to help keep its fiscal deficit in better shape. A good offer will find takers. But shares should be neither over- nor underpriced. Much could hinge on such judgement calls.

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