An Offer For Sale (OFS) by the coal major has triggered FTSE to increase free float in Coal India Ltd (CIL), and this is likely to activate buying in the stock. Free float is the proportion of shares in issue that are deemed to be tradable. Index funds that mimic the FTSE indices are likely to rebalance their portfolios, which will stir up buying in the stock.
“As per Nuvama Alternative best estimates, this will lead to an inflow of approximately $18.5 million; 6.6mn shares which is equivalent to 0.7 days ADV,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.
He added that adjustment will happen on June 7, 2023.
Read more | Coal India OFS: What should investors do?
Following the updated shareholder information for CIL post the secondary offering, FTSE said indices that will see an investability weight change are--FTSE All-World Index, FTSE MPF All-World Index, FTSE Global Large Cap Index, and FTSE Emerging Index.
Buying opportunity
The investability weight of a stock is adjusted according to foreign headroom if it increases more than 10 percent at the quarterly reviews. But the state-owned company coming out with an OFS prompted this investability weight change even before the quarterly review.
One of the largest coal producers in the world CIL coming out with an OFS presented several investors to dip their toes in the stock. Many market participants had tub-thumped that any decline in the share price of CIL is a good buying opportunity.
The OFS got an overwhelming response from investors. It was over-subscribed by both retail and institutional investors and the government is expected to get more than Rs 4,000 crore.
Read more | Coal India share sale over-subscribed, govt to get more than Rs 4,000 crore
Analysts' view
Analysts consider CIL as a stable play, mainly because of the robust power demand in India, growth of the manufacturing sector and rural electrification initiatives. Most believe CIL is well placed to capitalise on the growth opportunity ahead. Usually, the coal major’s stock has been touted as a good dividend play with a dividend yield of about 9 percent.
However, the coal mining company’s stock has not performed as enthusiastically in the past decade. The stock has fallen to Rs 227 as of June 7 from Rs 319 in June 2013, which implies a decline of close to 30 percent.
On June 6, the scrip settled at Rs 227.95, down 0.7 percent.
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