The fact that Maruti Udyog Ltd’s initial public offer (IPO) has been oversubscribed by ten times couldn’t be better news for the moribund primary market. The size of the IPO is itself ranked among the top issues in India’s capital market history, which makes the oversubscription level all the more mind-boggling. For starters, the IPO underlines the fact that when good companies with strong balance sheets and credibility come to the market to raise money, the investing public will bite. Also, the fact that an IPO of the size of Rs 830 crore has already been oversubscribed ten times is convincing evidence that investors have money.The process is also bound to boost prospects for the strategic sale of public sector undertakings. After all, if offloading the government’s stake in Maruti to a reputable strategic investor like the Japanese firm, Suzuki, could evoke such a thundering response, it means that the strategic sales of other PSUs would also invoke interest. Maruti, apart, the recent entry of some good public sector banks and a clutch of credible companies has also whetted the market’s appetite. Add to this the excellent performance of many of these stocks post-listing, and you have a sure sign that the primary market is gradually coming back to life after being in coma for years. It has long been argued that good issues will always find takers. Maruti has proved just that, and has set a trend for others to follow.From the government’s perspective, too, the IPO and its huge success spells a winning formula. Disinvestment minister Arun Shourie’s mix of strategic sales and public offers seems clearly to be the right combination in maximising inflows to government coffers. Next in line for IPOs are Bharat Petroleum Corporation Ltd and Nalco. If the Maruti experiment is any indication, investors are likely to feel more comfortable now, since these are strong, healthy companies with excellent bottomlines. While some may argue that the strategic sales route is the best bet if maximisation of returns for the government is the sole objective, there’s a lot to be said in favour of the public offer route as well. The IPO route has obvious collateral benefits like galvanising the secondary market, creating higher value for the government’s residual holdings and generating greater public participation in the disinvestment process. In the case of strategic sales, the market buoyancy generally is limited to a certain period. But in the IPO route, the disinvestment process generates optimism and interest across a much wider horizon. A case-by-case approach, and a judicious mix of both routes—depending upon the government’s holdings in various companies—is bound to yield rich results in the coming days.
