The Hindu Business Line : FII inflows to persist despite IPO rush, say brokers

PUBLIC offers of around Rs 15,000 crore to Rs 17,000 crore in the next few weeks are unlikely to have any negative impact on the stock market or on the foreign fund flows to the Indian equity market, according to stock brokers and analysts.

On the other hand, the initial public offers (IPOs) are expected to bring more cheer to the market. The view, especially among foreign brokerage firms, is based on the assumption that with increase in the floating stock, more FIIs are expected to invest in the Indian market.

International rating agencies expect FIIs inflows to India to increase significantly in 2004.

Brokers expect India's weightage in Morgan Stanley Capital International (MSCI) Emerging Market Fund Index, the benchmark index for foreign investors, to go up.

The big issues expected in the next few weeks include disinvestments of ONGC (around Rs 10,000 crore), GAIL (India) Ltd (Rs 2,000 crore), and IPCL (Rs 1,000 crore). Other public offering expected in the next four to eight weeks include Biocon Laboratories, Petronet LNG and Bank of Maharashtra. Several other companies have also announced their plans to tap the primary market.

The quantum of money to be raised from the primary market would be the highest in the last 10 years. After the announcement of big issues from ONGC and GAIL (India) before March 2004, stock prices have moved in a narrow range and there are concerns that FIIs would offload their holding in the secondary market in order to subscribe to public offers of several PSUs.

According to foreign broking firm CLSA, "Quantum of fresh equity supply is certainly high relative to previous years. However, in the context of the rising focus of global investors on India, this could be viewed as an enabler for the wider participation of foreign investors in the Indian market."

The foreign broking firm said that most of the smaller equity issuances are from emerging sectors such as IT and IT-enabled services, media, telecom, energy distribution, pharmaceuticals and biotechnology, which may be under represented in the equity market relative to their growing importance in the gross domestic product.

One factor for the comparatively lower participation of FIIs in India is the low floating stocks of several good companies. "Broad-based public holding and increase in liquidity opens up trading interest of institutional investors," said Mr Vineet Bhatnagar Managing Director Refco-Sify Securities.

He said FIIs normally look at market capitalisation and average trading in stocks before investing. "Public offers of several PSUs (especially in case of listed PSUs) would increase liquidity in these stocks and the interest of FIIs in India."

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