Indias Double D Conumdrum

Soon the Indian Govt will face a major problem due to deficits and lack of disinvestment.

This yr, is a yr of spending and deficits as elections in 3 states are in the offing. It needs money to bridge the burgeoning defecits that are way above comfort level. But there is no 3g license money this year, so extra money should come from disinvestment. Food prices and Interest rates are heading north making the markets tank.There is a revolution in the middle east as people are loosing patience .

As the markets in some BRIC and developing countries have crashed, India has seen a rather steep fall from grace , as investors small and big  in recently listed company issues or IPOs and FPOs  have handsomely lost money.  The Govt Issues are no exception, check out the stats.

Equity
Issue Price Current Price %Gain/Loss
February-2011
98.00 34.70 -64.59
January-2011
70.00 68.45 -2.21
110.00 202.15 83.77
30.00 30.90 3.00
December-2010
120.00 105.95 -11.71
400.00 255.90 -36.03
228.00 194.85 -14.54
375.00 407.00 8.53
75.00 57.50 -23.33
November-2010
125.00 229.10 83.28
245.00 301.60 23.10

Even its FPOS have done badly from NTPC to SCI  every issue has lost 10 to 15% of small investors money even after the 5% safety margin.

The disinvestment policy of the govt is fundamentally flawed and a purely a revenue garnering exercise and there is no change in either management or culture or profitability of the companies, worse the govt uses PSUs as their private fiefdoms and as cash cows, to cheat investors of just gains by making them bear subsidy burden.

Lastly it is scared of selling psus cheap, as they had blamed the bjp alliance of selling family silver cheap in issues like ONGC AND NTPC .

People are slowly loosing confidence in Govt PSU IPOS , because they cant even get the nickle and dimes that they get when they flip, as the govt issues open barely above water, worse even Fiis who subscribed taking long term into account are a disenchanted lot thanks to govt policy.

Even Moneylife in an article states that Fiis are loosing confidence and dumping PSU shares of the most successful issue in the recent past  Coal India.

“The company has landed in a tough situation. Many projects are under the scanner of the Ministry of Environment and Forests (MoEF) which has hampered its production target,” said an analyst with a Mumbai-based research firm. “Secondly, the company’s wage cost will be very high once the hike comes into effect in July. And third, being a state-owned company it would find it nearly impossible to hike coal prices when inflation rates are very high.”

All this is bad news for institutional investors, who were dying to get a piece of Coal India in the November IPO. Foreign investors owned 14.72 crore shares or 5.7% of the company till 14th January, up from 3.3% held soon after the IPO on 30th October. Filings indicate that retail investors’ shareholding fell during the period from 4.1% to 1.8%. The revision of the production target has also shaken the trust of foreign investors in CIL. Legg Mason Funds, DSP Blackrock and other investors have sold their shares.


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