NTPC

NTPC has entered the capital market on 3^rd February 2010, with an FPO of 41.23 crore equity shares, of Rs. 10 each, with floor price having fixed for retail and HNI category, at Rs. 201 per share. The entire FPO is an Offer for Sale by the Govt. under its divestment programme, with 50% issue reserved for QIB, 15% for HNIs and 35% for retail category. While HNIs and Retail category will get the allotment at Rs. 201 per share, QIB category will get it above floor price, under French Auction Method. Those who would be bidding maximum price in QIB category, will get full allotment and top down approach for allocation of shares to QIB applicants will be followed.

In case of FPO, there is no point in taking a fundamental call on the company, which infact is the job of institutional investors while retail and HNI category purely goes for the issue, based on the secondary market price. Inspite of this, government has been found to be too greedy while fixing floor price. In this turbulent market, who will go for this issue at Rs. 201 per share when it is ruling at Rs. 209 in the secondary market. If the share could correct from Rs. 242 to Rs. 209 in a month, it can also slip below Rs. 200, (as its 52 week low is at Rs. 167) in the near term. This will also be the fear of the retail investors, which will prevent them to go for it. HNIs are having much better choice and option in the secondary market, either within the sector or within other frontliners and blue chips.

Here, one needs to question the wisdom of government and investment bankers (IB) while pricing the issue. It has been gathered that IBs have earlier indicated a price of Rs. 225 to Rs. 230 per share to the Govt., as it was ruling at around Rs. 240 per share at that time. Also, it was expected that government may offer a further discount of Rs. 10 to Rs. 15, on floor price to be declared, to retail category. But nothing of that sort has happened and even the mistakes made in NHPC IPO, were not understood and learnt by the government.

If we take total issue size at floor price, it comes to about Rs. 8,200 crores. Even if a 5% discount would have been offered, government would have sacrificed Rs. 145 cores, on retail portion, which otherwise would have largely got compensated by larger participation of retail investors. Infact, PSU companies need higher retail investors' participation, which is now at a maximum of 11 lakh investors in PSU listed companies against 40 lakh plus in case of private sector company.

With this floor price, response is likely to be lukewarm in non - QIB category which will spoil the party, going ahead for PSU divestment, especially via FPOs.

Considering all this, it is advised to skip the issue as looking to the volatility in the secondary market, chances of price shipping below floor price is quite high. It is better to buy the stock from the secondary market, when it slips below Rs. 200, instead of considering FPO.

Skip the issue.