Investors Fleeing India Complicate Singh's Push for Asset Sales

Indian Prime Minister Manmohan Singh, who’s halfway to his fiscal-year target for share sales with 35 days to go, may have to set a more ambitious goal for the next 12 months even as investors shun the country’s stocks.

India’s government may seek a record 500 billion rupees ($11 billion) in the year starting April 1 as it tries to shrink the fiscal deficit, said Anubhuti Sahay, an economist at Standard Chartered Plc in Mumbai. Finance Minister Pranab Mukherjee will propose the fiscal budget on Feb. 28.

Singh’s administration delayed at least three sales of shares in state-owned companies in 2010 even as foreign investors poured a record $29 billion into Indian stocks. With few options for mending government finances, Singh may turn to banks including Citigroup Inc. to accelerate privatizations -- a process made tougher as persistent inflation and unrest in the Middle East dents demand for emerging-market equities.

“Last year was one of the best for the market and they couldn’t meet their target,” said Rakesh Arora, head of India research at Macquarie Group Ltd. in Mumbai. “There is no way foreign investors will be able to match the money they put into India in 2010,” Arora said in an interview on Feb. 22.

India’s Sensitive Index has fallen 14 percent this year, the worst performance among Asian benchmarks in local currency terms, according to data compiled by Bloomberg. The gauge fell 3 percent yesterday, the most in more than 15 months, as food- price gains accelerated. Foreign investors have sold a net $1.58 billion of Indian shares since Jan. 1, the data show.
Pending Sales

Singh, 78, raised 227.6 billion rupees since the start of this fiscal year through shares of companies including Coal India Ltd., the world’s biggest producer of the fuel. The sale of a 5 percent stake in Oil & Natural Gas Corp., scheduled for next month, may add another 113 billion rupees to state coffers, based on New Delhi-based ONGC’s closing price yesterday.

That would still leave the government 15 percent short of its fiscal-year target of 400 billion rupees.

Proposed sales of stakes in Indian Oil Corp., the country’s biggest refiner, and Steel Authority of India Ltd., its second- largest producer of the alloy, may help raise about 104 billion rupees next fiscal year, according to data compiled by Bloomberg. The Department of Disinvestment has also hired bankers for Power Finance Corp., a lender to Indian utilities, and Hindustan Copper Ltd., India’s only miner of the metal.

India’s cabinet in November 2009 approved a plan requiring the government to reduce its stake in profitable state-run companies to a maximum 90 percent. That made about 60 state-run companies eligible for sales, the finance ministry said at the time, including miner and power producer Neyveli Lignite Corp., National Fertilizers Ltd. and MMTC Ltd., the nation’s biggest state-run trading company.

Telecom Reprieve

The government has also been considering an initial share sale for former phone monopoly Bharat Sanchar Nigam Ltd. since at least 2003. A 10 percent stake would raise $10 billion, the company’s finance director estimated in January 2008. The government hasn’t decided on the initial share sale, Telecommunications Secretary P.J. Thomas said in July.

Singh’s administration won a reprieve on meeting its privatization target in the current financial year because of the 1.06 trillion rupees it raised from the sale of wireless permits and spectrum, said Sahay. Tax revenue also climbed 20 percent in the first 10 months of the fiscal year, driven by India’s economic growth.

The push to meet asset-sale targets may be “much stronger” in the new financial year, Sahay said.

India’s budget deficit may drop to 4.8 percent of gross domestic product by March 2012, from an estimated 5.2 percent by the end of next month, Chakravarthy Rangarajan, chairman of Singh’s Economic Advisory Council, said this month. That compares with 2.7 percent for the year to March 2008.
Diminishing Demand

A renewed push by Singh to sell state companies could be complicated by diminished demand for emerging-market equities. The MSCI Emerging Markets Index lost 6 percent this year, even as the MSCI World Index rose 4 percent through yesterday.

Indian companies raised 41 billion rupees in share sales since Dec. 31, less than a fifth of the amount collected in the same period of 2010, according to data compiled by Bloomberg. Citigroup is the top-ranked arranger of stock offerings in the country this year, maintaining the lead it had in 2010, followed by Deutsche Bank AG and HSBC Holdings Plc, the data show.

Intensified efforts to sell state-backed companies may spell trouble for private firms seeking to go public, said Abhishek Saraf, an analyst at Deutsche Bank in Mumbai. State companies paid underwriters near-zero fees in 2010, while commissions for private share sales averaged 3.5 percent, Bloomberg data show.

Government-owned companies also typically sell shares at lower valuations than private enterprises, said Jagannadham Thunuguntla, an analyst at SMC Global Securities Ltd.

“Disinvestment deals are more likely to go through than private paper,” said Saraf. That’s because the government may be more willing to ease up on pricing than company owners, he said.