The Indian equity markets ranked among the best-performing markets worldwide in 2009 as the BSE Sensex more than doubled from a sub 8,000-point level it dipped to amidst despair earlier in the year.

The clear trigger point for this rally was the mix of political stability, absence of the Left Front from the Government and the Government’s stated intent to aggressively pursue PSU disinvestment.

The initial buzz was that there were 18 PSU companies being primed to hit the capital market over the next 36 months. Notably, though, the second half of the calendar year 2009 witnessed the disinvestment of only two companies -- NHPC and Oil India.

However, from the look of things and unless something goes horribly wrong at the bourses, 2010 could well be the year when the disinvestment programme comes of age.

The Government has already announced the likely FPOs (follow-on public offerings) of NPTC and REC during the first quarter of calendar year 2010. Power Grid, too, is planning its follow-on issue. Notably, all these companies are from the power sector, one that has proved a Waterloo, especially for private sector IPO issuers. 

However, my gut feel is that the Government is now on the right track and will not only take these IPOs through, but also try and ensure that retail investors are not short-changed.

NTPC is the country’s largest thermal power generating company with an installed capacity of 30,000 MW that forms almost 20% of  power capacity in the country.  In 2004, the company had raised around Rs 2,700 crore through its IPO when the Government diluted a 5.24% stake.

Now, the Government is planning to offer a 5% stake in the company through the FPO that would fetch it over Rs 8,000 crore at the prevalent market price.  The Government holding would thus come down from the current 89.5% to 84.5%, post issue. The proceeds from the issue would go towards the investment fund for financing social sector schemes.

Moreover, NTPC’s FPO could also be the first public issue to use the auction route through capital markets and have the distinction of being the third fast-track issue in the history of the Indian capital market, post the issues of SBI and Hindalco. (A fast-track issue does not require SEBI’s approval and can go to public immediately after filing the prospectus.)

The company is likely to file its prospectus in the third or fourth week of January 2010. This FPO is likely to be closely followed by that of Rural Electrification Corporation (REC).

REC is engaged in the business of financing and promoting transmission, distribution and generation projects throughout the country and has raised over Rs 1,600 crore through its IPO in February 2008.

The Ministry of Power has already approved the FPO of REC for up to 20% of the existing paid-up capital of the company.  While the dilution of the government stake would reduce its holding to less than 67%, the disinvestment  proceeds will once again be used by the Government to fund social sector reforms and the fresh issue would be used to augment the capital base to meet its future capital requirements.

As if on cue, a slew of private sector companies have lined up their IPOs for the first half of 2010. They include Reliance Infratel, Emaar MGF, Sahara Prime City, among others.

But clearly, the disinvestment plans seem to be gaining momentum and PSUs are national assets and get a large portion of their businesses from Government undertakings. This not only enhances their business visibility as compared to private peers, but also limits their downside.

Further, every divestment of equity stake therein will also help to enhance their accountability.

To conclude, there is a lot of action lined up in the primary market and retail investors need to negotiate the minefield carefully to survive and maximise gains. My hunch is that they will be best served, by and large, backing PSU IPOs.

Ashok Kumar is promoter, theIPOguru.com and Director, Lotus Knowlwealth

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