The government's move to make it mandatory for listed companies to raise public stakeholding to 25 per cent will require additional capital of Rs 58,500 crore (Rs 585 billion) from the market this fiscal, but few investors will have the appetite for it, a report said.
"With incremental flows strongly dependent on the global macro (situation), there could be few takers for the additional capital of Rs 58,500 crore ($12.5 billion) on offer this fiscal...," said the report released by financial services firm Religare.
It said that up to May this year, about $12 billion has been already raised from the market, while about $18 billion was raised in the entire 2009 fiscal, according to Religare.
The high level of capital raising on account of the new listing norms is likely to be a drag on the secondary market as far as valuations of the companies below the threshold are concerned, Religare said.
It said the certainty of new capital on offer in many large-caps would tend to be a drag on their valuations, while holding back incremental investments into mid-caps.
Religare said the new measures are a step forward in ensuring transparency and efficient price discovery in Indian equities.
"However, the large amount of equity capital on offer could become an overhang on the secondary markets and on the disinvestment target this year."
Last week, the government set a minimum threshold level of 25 per cent for public shareholding of all listed companies in the country. Companies with less than 25 per cent free-float would have to free up promoter holding in 5 per cent increments.
Religare said as companies increase their free-float by 5 per cent each year, the new measures are likely to raise about Rs 1.5 lakh crore ($32 billion) over the next five years at current market levels.
Almost 85 per cent of this amount would come from public sector enterprises, it added. It added that many private companies might prefer to release equity via QIPs.
On the government's disinvestment target of raising Rs 40,000 crore this fiscal, mostly through IPOs, Religare said, "We believe that investor preference for listed (private) entities could become an overhang on the already lukewarm response to issues this year." It said large issuances in the private sector (35 in all in the BSE 500) are expected in IT services (Wipro, Oracle Fin), real estate (DLF), utilities (Reliance Power, JSW Energy) and capital goods (Mundra Port).
Overall, the firm said the new listing norms are a positive step towards greater transparency, disclosure and depth and would ultimately lead to more efficient price discovery in Indian equities, especially in the primary markets.
