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North Block roots for staggered IPOs

New Delhi, March 22: Finance ministry officials feel that the Securities and Exchange Board of India (Sebi) should space out mega public offerings in future to curb volatility on the bourses.

Top finance ministry officials feel much of the problem of volatility stems from the sudden shift of resources by financial institutions (FIs), foreign institutional investors (FIIs) and high networth individuals from previous holdings towards new issues.

The finance ministry and Sebi officials have been studying the sharp swings on bourses ever since a spate of high-value IPOs by state-owned companies and private firms were announced.

“We may advise Sebi to look into whether high-value IPOs should be spaced out in the interests of the market for the future,” said senior finance ministry officials.

Finance ministry officials have long feared that the signal sent to state-run FIs to prop up the PSU offerings may actually have spelt disaster to a key pre-election aim of the BJP-led government — spreading good cheer on the bourses. The government had asked FIs run by it to support the IPOs it had launched last month after an initial poor response to the offerings.

The ministry’s fears have been virtually confirmed by a report prepared by NCAER, a leading government-run think tank. The report said: “Too many IPOs in too short a time exacerbated the fall (of the sensex). In fact, the government could well have held back a couple of issues and focussed on the really important ones such as the Oil and Natural Gas Corporation. That would have eased the pressure given that the government is not the only borrower today and there were some attractive offers like Biocon.”

It went on to say, “India’s first experience with big-ticket public sector IPOs — Rs 15,000 crore in just 45 days — came last month, but it was enveloped in controversy. Within 10 days of announcement of the IPCL offer, the sensex lost about 450 points.”

The government in all made six IPOs in blue chips like IPCL, IBP, CMC, Dregding Corp, Gail and ONGC. Each of the offerings saw huge oversubscriptions.

The ministry’s fears and thinking on advising the market regulator to look into spacing public issues stems from reports that the disinvestment ministry is considering raising as much as Rs 15,000 crore every year for five years from the market by way of similar public offerings.

Officials said they agree with the think tank’s analysis that investors would find it hard to subscribe to more than a couple of issues if so many were made within a short span of time.

Most analysts believe FIs and FIIs had sold heavily in lower end blue chip firms and in mid- cap shares to possibly mobilise resources for the spate of lucrative offerings. In a single day’s trade last month when the IPOs were on, 3 million SAIL shares were traded. Similarly over 3.7 million shares in Tata Power and a million Hero Honda shares were traded on that day. While Pfizer saw 1.26 lakh shares changing hands as did Hindalco which saw 1.83 lakh share sold while Dr Reddy's saw 2.16 lakh shares traded.

The NCAER report also believes that besides the problem of resources, the market was in any case headed for a correction, given the furious pace at which it had run up and hence the sudden fall in the sensex.

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