Tuesday, October 19, 2010

IPOs/FPOs of Public Sector Organizations and Inclusive Growth

Its been a busy IPO/FPO market in India and with some of the biggest IPOs/FPOs yet to hit the market, things will only get busier. Among all the IPOs/FPOs the ones that will hog the limelight are the IPOs/FPOs of State run companies. Coal India Limited's IPO is presently under going book building process where its targeting to mop up Rs 15000 crore from the market. Other biggies that are lined up are MOIL, SAIL, Power Grid, ONGC and OIL INDIA. The government has to meet its target of Rs 40000 crore revenue through disinvestment. Nearly 35% of that will come from the retail investors. Its a whopping Rs 14000 crore!!! First of all I don't think RBI has to do much to control inflation after these offers as the liquidity will be sucked up to the maximum... But still its a huge amount!!! With the number of active retail investors in the market, it seems to be a bit difficult task. But, if you change the picture a bit and instead look at the population of India... this amount is well within our reach...

Its no secret that with India progressing the gap between the rich and the poor is widening as never before. This is not a financial issue but a social issue which if not addressed in time will destroy us as it destroyed the other developed civilizations in the past. The financial divide between the various sections of the society had been the catalyst of all revolutions throughout the history. And India is trading the same track. The need of the hour is to take the India Shining story to the last strata of the society which presently exists totally unaffected from it. Financial inclusion of every section of Indian class in the India Growth story is must. But the million or rather zillion dollar question is, HOW?

Now, just look at the IPO story in conjunction with the inclusive growth need. These might be mutual solutions to each other. All these state run companies IPOs/FPOs are value issues which have tremendous upside potential with minimal risk. They can be huge wealth creators for their shareholders in the long run. Moreover, they are government owned companies! So, if there is inclusion of all the social classes in these IPOs/FPOs there can be a win win situation for both the sides. On one hand these companies will get a broader retailer response, which will help them to raise the money with lesser trouble while on the other the retail investor can become a part of the India growth story through these companies. But the problem is to get these people to invest in these companies.

Indians inherently are more risk averse and conservative. Stock market is still a mystery to many. I don't have the numbers but I am confident that the number of retail investors in India is very minimal. None in my family invest in stocks! And here I am talking about a well off educated family.... When I told my Dad that I am going to invest in stocks his first reaction was, "People lose money in stocks. Its very risky.... Don't invest.... and if you have to, invest a little". I am sure the scenario will not be different with many of your families. And when we talk about inclusive growth then we are talking of encouraging those people to invest, who are much less educated and analytical and much more emotional. So, you can understand the gravity of the situation.

But how can this be addressed... Thats the question which we are looking to answer. The first and foremost thing that is required is to educate people and create awareness about the stock market and shares. For many this has to be done from scratch as I am sure that many might not even ever heard of stocks. Once the level of awareness will rise, people will shed their inhibitions about the stock market and more and more people will start investing in stocks. Coal India tried to involve its worker class by having brokering houses to educate them and help them open demat accounts. But its not enough... We need to scale it up to the national level where more and more villages are covered under such programs. But its easily said than done, isn't it? There can be an answer to that too. The banking system and Postal system in India has really made in roads to the remotest areas of the country. These can be leveraged to achieve our objective. Now, private firms might not be interested in doing this, but the state run organizations must make that additional effort to include the wider population of the country. In addition to doing road shows for institutional investors, these organizations can tie up with the banks or with the Indian postal department to conduct village level educative sessions for our target segment. If there is a will to do this in the government then logistics can easily be worked out....

There hasn't been any focus on this side and I don't think there is any proposal for the same with the government. But if there is anyone from a government agency reading this blog... then this might be one of the ideas that you would like to take up for implementation for the greater good.

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