Traders in a mad scramble for Coal India, SBI issues

KOLKATA | MUMBAI: The nation’s biggest share sale from Coal India and the first retail bond offering by the State Bank of India were sold out as domestic investors borrowed to buy them, expecting high returns as overseas investors keep faith in economic and earnings growth.

Coal India’s 63.16-crore share offering was subscribed 1.71 times on the second day while SBI’s Rs 1,000-crore bond issue was subscribed 17 times. The bank may close the sale well ahead of the scheduled October 25, said an official at the bank who did not want to be identified.

“I decided to take a Rs 9-crore loan for the Coal India IPO so that I can leverage my own fund of Rs 1 crore,” said Amit Aggrawal, a 37-year-old Kolkata-based trader. "This would increase my chances of getting more shares in the allotment 10 times and help me make a killing."

Investors and traders are chasing new shares and high-yielding bonds to beat the soaring inflation that’s leading to negative real income from bank deposits which pay lesser than inflation. That’s helping the government to move ahead in realising its target of raising Rs 40,000 crore from sale of shares in state-run companies, and private ones in raising capital for projects. But some believe that asset prices may be getting into a bubble zone as some exploit investor greed.

Institutions, for whom bids in Coal India close on Wednesday, bid the most on Tuesday, with subscripttions coming in for 96 crore shares compared with the 28.43 crore reserved for them, according to NSE data. Wealthy investors bid for 0.54% of the 8.52 crore reserved. Retail investors subscribed to 0.35% of the 19.89 crore set aside.

But bankers say they would get full subscripttions from these two categories too since they do it on the last day, which is Thursday. Although the benchmark Sens*x fell 0.9% to 19,983.13, investors believe that it may be a short-term phenomenon and that the long-term outlook remains strong.

“We see India as a very powerful medium-term story with a real possibility that perhaps the Indian economy grows faster than China’s economy, and if you are looking at the major emerging markets that have substantial population and a very strong domestic story, then India stands out,” Adrian Mowat, strategist at JPMorgan Chase, told ET NOW. “So, yes I am a buyer of Indian equity for a 5-year term.”

In the grey market, Coal India shares are trading at Rs 280 apiece, or 14% higher than the top end of the Rs 225-245 range set by the government for bids. “CIL is well positioned to capitalise on the high demand for coal in India,” says HDFC Securities in a note. “The issue looks good from a listing gains as well as medium-term perspective.”

From the return perspective, the SBI bonds also offer strong incentives for investors. State Bank is selling 15-year bonds, with call options, with a coupon of 9.25%, which is at least 125 basis points higher than government bonds. A basis point is 0.01 percentage point. This is better than comparable bonds in the market such as the 8% Infrastructure Development Finance Corporation bonds that have tax benefits too.

Source:ET