Dr. P.V. Viswanath

pviswanath@pace.edu

In India, Investors 'Buy Anything' -- Companies Line Up to Sell Shares, and Do So Easily, as the Stock Market Soars
WSJ, June 11, 2009 By JACKIE RANGE

New Delhi: India's reinvigorated stock market is sparking a rush by companies and the government to raise cash.

So far this year, issues of new shares have been scarce. But with the Bombay Stock Exchange's benchmark index at a 10-month high, many companies have plans to raise capital to bolster balance sheets and fund growth, bankers say.

The new government's budget, scheduled for release in early July, also could usher in new sales of stakes in public companies. The frenzy may be welcome news to investors looking to ride a rapid rise in India's stock market over the past few months.

Since India's election result May 16, which yielded a surprisingly strong victory for the ruling Congress party and its allies, the BSE's Sensitive Index, or Sensex, is up 27%. On Wednesday it closed at 15466.81, up 2.3%, and is up 60% year to date.

From its lowest point on March 9, the market has surged nearly 90% on signs of revival in the Indian economy, hopes that the new government will do more to drive growth, and a general rise in stocks around the world. India's gross domestic product increased 5.8% in the three months to March 31.

But the anticipated rush of new issuance also raises the risk that too many new shares could flood the market and quickly soak up demand.

"Can the market get saturated or, indeed, deals downsized? There is a distinct possibility," said Tarun Kataria, head of global banking and markets for HSBC in India. "Given current euphoria, investors are keen to play India and, it would appear, will buy anything. At some point soon, there will be a flight to quality."

Data provider Thomson Reuters expects $50 billion of new shares to be issued in India this year. So far, there has been just $1 billion.

Many of the new corporate share issuances are expected to be qualified institutional placements, in which only certain investors -- including foreign investors registered with the Securities and Exchange Board of India, and Indian banks and mutual funds -- can participate. Initial public offerings also are likely, bankers say, from both government-owned and private-sector businesses.

"Most of the balance sheets have been starved of equity over the last one year, so everybody's seeing this as an excellent opportunity to go and raise some," said Dilip Kadambi of ABN Amro Global Banking & Markets in India.

Shareholders of real-estate company Sobha Developers Ltd. will vote June 17 on whether to approve a $318 million fund raising. The company is looking to raise the money through a qualified institutional placement, company secretary N. Venkatramani said.

Infrastructure company Hindustan Construction Co. will ask shareholders on June 22 for the right to also raise $318 million. The form the fund raising will take hasn't been decided.

Real estate company Parsvnath Developers Ltd. hopes to raise $529 million over the next 12 months and will put the plan to shareholders on June 20.

On the IPO front, state-owned hydro-power outfit NHPC Ltd. and oil-exploration company Oil India Ltd. are expected to issue shares. On Monday, Rahul Khullar, the outgoing top bureaucrat in the department in charge of state company disinvestment, said the government is likely to sell stakes in NHPC and Oil India by September, followed by six to seven other companies before March 31, 2010.

The government's budget could offer further divestment plans amid the need to stimulate the economy without severely worsening the fiscal deficit.

Air India, India's national airline, and state-run telecommunications company Bharat Sanchar Nigam Ltd., or BSNL, are likely to sell some shares, market watchers say.

Questions:

1. Does this lead you to believe that markets are efficient or not?
2. Do you believe that the choice to issue debt or equity might depend on the market situation? Does the information in this article encourage such a belief?