Mumbai: An initial public offering by Coal India, the world's biggest miner of coal, to raise around $3.5 billion (Dh12.8 billion) will be the focus of investors this week. The sale, which opens tomorrow, will be the largest initial public offering (IPO) by an Indian company and is expected to absorb some of the foreign money that has been driving the country's stock market.
Brokers believe the IPO is attractively priced between Rs225 and Rs245 (Dh18.70-Dh20.30) a share and will be heavily subscribed, especially because the state company holds a dominant position in this energy-hungry nation. The firm produced 431 million tonnes of coal in 2009-10, roughly 80 per cent of the country's output.
"We believe that Coal India deserves to trade at premium to global coal prices in supply-deficit environment," brokerage CLSA said, forecasting a one-year forward share value of Rs309-Rs324.
Motilal Oswal, a leading domestic brokerage, set a price target of Rs325 — nearly a third more than the top end of the indicated IPO price band in the monopoly in which the government is selling 631.6 million shares, or a 10 per cent holding.
The sale, which closes on Thursday, will drain investor funds from the secondary market. In anticipation of this, there has been profit-taking. The Sensex fell for the second week in a row last week to 20,125.05 — its lowest close in October after coming within 350 points of a record high of 21,206.77 set on January 10, 2008.
"Large IPOs soak up cash and markets tend to sag afterwards," said equity trader Anand Rathod. "This has been a phenomenon in the past, but I think we'll see a pleasant change now."
A major reason for the optimism stems from the unprecedented amounts of foreign money coming into Indian markets. Data from the Securities and Exchange Board of India showed foreign institutional investors bought shares worth a record $23.4 billion between January 1 and October 14, with more than a third entering the market after August.
US stimulus move
With the US Federal Reserve set to announce further stimulus measures to salvage the world's biggest economy from slipping into another recession, near-zero interest rates in the developed countries are boosting capital flows to emerging markets such as India that is expanding at a fast clip.
The IMG has forecast India's gross domestic product, estimated at $1.3 trillion, would expand 9.7 per cent this year.
Infosys Technologies, which gets about 90 per cent of its sales from overseas, on Friday said it expected full-year revenue to grow 24 to 25 per cent to $5.95-$6 billion, raising the pace of growth from 19 to 21 per cent forecast in July.
The software services company posted 10.2 per cent rise in July-September revenue, the first double-digit quarter-on-quarter gain in three years, indicating the strong demand for outsourcing in an increasingly globalised economy.
Rathod said foreign inflows would maintain the momentum in the near term because of the potential bigger returns in India, and large share sales in the pipeline would only whet the appetite.
State-run firms Power Grid Corp is set to launch a follow-on share for $1.9 billion in mid-November and a month later Steel Authority of India will follow suit for a similar amount. In between, Hindustan Copper will raise $750 million. The government is also considering share sales in Indian Oil Corp and Oil and Natural Gas Corp that could top a combined $5.5 billion.
Deutsche Bank recommended that investors buy mid-cap stocks, saying they were likely to rally in the near term after lagging the big boys.
"While we are enthused by the recent trend of long-term value investors investing in large-cap stocks, we also believe that the underperformance of mid caps cannot continue for long and the anomaly should correct," strategists led by Abhay Laijawala wrote in a note.
Among the recommended stocks were Indiabulls Real Estate and Aban Offshore.
The writer is a journalist based in India.
