Long-only funds, FIIs comprise 60-65% of EIL FPO: ICICI Sec

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Long-only funds, FIIs comprise 60-65% of EIL FPO: ICICI Sec

The follow-on public offer of Engineers India has received a good response. In an interview with CNBC-TV18, Madhabi Puri Buch, MD & CEO, ICICI Securities, gave her perspective on how the issue has fared.

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Excerpts from What's Hot on CNBC-TV18 Watch the full show » Nifty BSE | NSE 01/06/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Shipping Corporation of India |

Q: The price band between Rs 270-290 what factors did you keep in mind when you priced that issue given the fact that market has not been particularly kind to the recent divestment stories?

A: The pricing has played a very important role. But I would also quickly add that the two other factors which have impacted the success of the issue is that the fundamentals of the company are very strong because it is operating in sectors which are very high growth sectors and on top of that the kind of expertise that are required to operate in this domain is not something that is easy to replicate.

So they are practically assured of a near monopolistic status and therefore a very significant growth going forward. So apart from the fundamentals and the pricing I would also say that the markets have been good. For the last few weeks we have seen a good upward momentum, people are confident that Europe is behind them, people are confident that China won't throw up any surprises.

So all three factors contribute. But certainly in terms of pricing the way that it was approached was really to say that there are three things that need to be kept in mind. First of all it is an existing listed entity so the current price at that time was taken into consideration.

The second was the company and the Department of Disinvestment did extensive road shows not only with institutional investors but also speaking to the brokers and those who represented the retail investors and that feedback was taken onboard as well.

The third of course was that in finally determining the band, the philosophy of saying that this is the wealth of the nation and it needs to go back to the citizens of this country was something that they kept in mind as well as keeping in mind that the markets are volatile and therefore a certain amount of cushion is necessary to be kept in the price band. But they have been proved right and today when the markets are good and strong most of the bids have really come in at the upper end of the price band.

Q: You have seen a strong response but do you think there will be appetite for disinvestment stories and that's likely to improve since the market conditions have improved. There is Coal India that's the big one that's expected next, Shipping Corporation as well, do you believe retail investors will buy into these stories now?

A: Most certainly. I think that particularly in terms of the approach that the government is taking in its disinvestment programme, clearly the philosophy is that they wish the citizens of the country to participate. The 5% discount that was given in this case which is not insignificant, practically a Rs 15 discount and on top of that today the stock price is quoting at about Rs 323. So a retail investor buying it at Rs 275 and then price reigning at Rs 323 is really very attractive.

But going forward I think that the approach is likely to be consistent. But one does need to keep in mind that future issues particularly Coal India would be a very large sized issue. This issue was roughly just under a Rs 1000 crore. The Coal India issue is likely to be many multiples of that. In the retail part, households do have a certain amount of investment surplus at any given point in time.

So there is just that much capacity to absorb even high quality paper which is priced well. There is a certain finite quantity that can be absorbed at any given time. So we should not expect many multiples particularly from the retail investors for very large issues.

But the momentum is good and if the markets hold up we should see continued strong response from the investors.