SINGPORE: India may fail to absorb a surging supply of stocks as increased sales "drag" on the market, after the government raised the minimum
public holding for all companies, Credit Suisse Group said.
More than 200 companies may need to sell at least $13 billion of shares over the next 12 months, analysts led by Nilesh Jasani wrote in a report. Some $15 billion of equity offerings are already planned, they said. All companies must increase the public holding to at least 25% by selling at least 5% a year, the government said on June 4.
"Implementation could prove to be a substantial drag for the market," the analysts wrote. "Without a rampant bull market supported by massive unprecedented inflows, the rule-modified primary market demand for funds cannot be met."
The BSE benchmark index, the Sensex, has dropped 4.9% this year, after soaring 81% in 2009, the biggest rally in 18 years. The equities have retreated in 2010 as India's central bank increased borrowing costs to curb the fastest inflation rate among Group of 20 nations, and the deepening European sovereign-debt crisis raised concern the global economic recovery will slow.
NTPC, the nation's biggest utility, and Reliance Power, owned by billionaire Anil Ambani, are among a sixth of the top 3,000 listed Indian companies that may need to sell about Rs 2.5 lakh crore ($53 billion) of shares over coming years to comply with the new rule, according to data compiled by Bloomberg.
'Valuation Discount'
Companies seeking to raise their public holdings may see their shares carrying a "valuation discount," while those planning to sell stock in stages could face the risk of low demand in initial offerings, according to Credit Suisse.
The best foreign institutional investor inflows over any 12-month period were $25 billion, according to the Credit Suisse analysts, who were third-ranked for India research in Institutional Investor magazine's 2010 Asian poll. They didn't state the period of the inflows.
The minimum public float is being increased for all companies as Prime Minister Manmohan Singh's government seeks to raise a record Rs 40,000 crore this year from selling equity in Engineers India, Steel Authority of India and other state enterprises to help cut a budget deficit.
The previous rule allowed companies with a free-float worth at least Rs 100 crore to have as little as 10% traded, while there was no minimum for state-owned enterprises.
Outflows
Overseas investors sold $2 billion more of Indian shares than they bought in May, the most since October 2008 following the collapse of Lehman Brothers, according to stock exchange data.
Foreigners have bought a net Rs 21,500 crore ($4.6 billion) of the stocks so far this year, according to the market regulator. Inflows from overseas reached a record Rs 83,420 crore in 2009, after a record outflow of Rs 52,990 crore in 2008.
More than 200 companies may need to sell at least $13 billion of shares over the next 12 months, analysts led by Nilesh Jasani wrote in a report. Some $15 billion of equity offerings are already planned, they said. All companies must increase the public holding to at least 25% by selling at least 5% a year, the government said on June 4.
"Implementation could prove to be a substantial drag for the market," the analysts wrote. "Without a rampant bull market supported by massive unprecedented inflows, the rule-modified primary market demand for funds cannot be met."
The BSE benchmark index, the Sensex, has dropped 4.9% this year, after soaring 81% in 2009, the biggest rally in 18 years. The equities have retreated in 2010 as India's central bank increased borrowing costs to curb the fastest inflation rate among Group of 20 nations, and the deepening European sovereign-debt crisis raised concern the global economic recovery will slow.
NTPC, the nation's biggest utility, and Reliance Power, owned by billionaire Anil Ambani, are among a sixth of the top 3,000 listed Indian companies that may need to sell about Rs 2.5 lakh crore ($53 billion) of shares over coming years to comply with the new rule, according to data compiled by Bloomberg.
'Valuation Discount'
Companies seeking to raise their public holdings may see their shares carrying a "valuation discount," while those planning to sell stock in stages could face the risk of low demand in initial offerings, according to Credit Suisse.
The best foreign institutional investor inflows over any 12-month period were $25 billion, according to the Credit Suisse analysts, who were third-ranked for India research in Institutional Investor magazine's 2010 Asian poll. They didn't state the period of the inflows.
The minimum public float is being increased for all companies as Prime Minister Manmohan Singh's government seeks to raise a record Rs 40,000 crore this year from selling equity in Engineers India, Steel Authority of India and other state enterprises to help cut a budget deficit.
The previous rule allowed companies with a free-float worth at least Rs 100 crore to have as little as 10% traded, while there was no minimum for state-owned enterprises.
Outflows
Overseas investors sold $2 billion more of Indian shares than they bought in May, the most since October 2008 following the collapse of Lehman Brothers, according to stock exchange data.
Foreigners have bought a net Rs 21,500 crore ($4.6 billion) of the stocks so far this year, according to the market regulator. Inflows from overseas reached a record Rs 83,420 crore in 2009, after a record outflow of Rs 52,990 crore in 2008.
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