The strong response to the Rs 6,048-crore public offering of NHPC subscribed 23 times over indicates that the primary market is becoming more robust. Public issues of Adani Power (Rs 3,000 crore) and Mahindra Holidays and Resort (Rs 275 crore) also drew similar response earlier.
This contrasts with the situation a little over a year ago, when companies that had lined up public issues had to withdraw their offerings from the primary market. The Reliance Power IPO was the last public offering to scrape through before the financial crisis led to a panic in markets.
Clearly, risk aversion has come down significantly, particularly after markets recovered, post elections, from its March 2009 lows. Investors are now willing to move out of cash and various low-risk low-return instruments to place their bets on good quality reasonably-priced paper from both public and private sector companies.
That should augur well for the governments disinvestment plans and encourage the Centre to bring well-run PSUs to the market for new listing as well as to improve liquidity of stocks already trading on the bourses.
In doing so, the government must ensure it does not crowd out fund-raising by the private sector entities. That is perceived to be a real threat.
Yet, going forward, the government would do well to widen the stock market with good PSU paper at a time when excess liquidity from the developed economies chase more emerging market scrips. There is far too much liquidity sloshing around the globe, thanks largely to the stimulus packages put in place by governments and central banks to revive sagging economic growth.
Much of that money has found its way into equity and commodity markets, including those in India. For instance, FIIs net invested more than $7 billion in the current calendar year in Indian equities, after withdrawing about $12 billion in 2008. With India set to grow faster than most other economies, despite the looming drought, more money would flow into the country.
The government must seize this opportunity to tap the markets for resources for itself as well as the capex plans of the PSUs. And, it can take comfort that appetite for PSU shares would be strong if the offering is reasonably priced.