State-run explorer Oil and Natural Gas Corp on Friday deferred a share sale expected to raise as much as $2.5 billion, further slowing the government's divestment program and raising concerns of the impact on India's fiscal deficit.
"I think it is now a foregone conclusion that the government won't meet its divestment target this year," said Mohit Mirchandani, head of investments at Religare Portfolio Management Services.
"The effect on the broader equity market will be in terms of worries about the government falling short of finances, and the fiscal deficit going up," he added.
The ONGC offer was part of a broader government plan to raise about $9 billion from share sales this fiscal year, an effort aimed at plugging India's fiscal gap and generating funds for schemes for the poor.
But the government has raised only about $250 million through the $1 billion public offer in Power Finance Corp in May, the only divestment so far this fiscal year. It has not provided new dates for the ONGC offer.
Other large planned divestments, including a share sale in Indian Oil Corp of up to $4 billion and a $1.8 billion offer in Steel Authority of India Ltd have also been deferred.
The delay adds to worries for the government, which has been struggling with persistent inflation and a slew of corruption scandals that have weakened its ability to push reforms through.
On Friday, The Reserve Bank of India (RBI) raised interest rates for the twelfth time in 18 months and stuck with its anti-inflationary stance even as growth slows in Asia's third-largest economy.
This followed a decision on Thursday by state-run oil firms to raise petrol prices by nearly 5 percent, adding near-term pressure to stubbornly high inflation.
INVESTORS HAPPY
Investors however, cheered the delay, pushing up ONGC shares as much as 8 percent in Friday trade. The stock closed 5.4 percent higher, its biggest single-day gain in nearly 15 months.
The sale of a 5-percent stake by the government was widely expected to be issued at a discount in an effort to lure investors in a volatile market.
ONGC's share sale, first scheduled for March, has been postponed several times this year due to turmoil in global markets and lingering concerns over government fuel subsidies, part of which are borne by ONGC.
ONGC did not disclose a reason for this latest delay, which comes after the company went on road shows in overseas markets including the United States, London and Singapore, and just days before a scheduled launch for Sept 20.
A source with direct knowledge told Reuters late Thursday that the government had decided to delay the share sale due to poor market conditions.
ONGC said the government would evaluate its decision in due course.
Indian companies raised $7.1 billion in equity in the first half of 2011, down 42 percent from the year-ago period, according to Thomson Reuters data.
Shares in ONGC, the third-largest listed firm in India by market value, have declined nearly 15 percent so far in 2011.
The BSE Sensex is down nearly 18 percent so far this year, making it one of the world's worst-performing markets.
"I think it is now a foregone conclusion that the government won't meet its divestment target this year," said Mohit Mirchandani, head of investments at Religare Portfolio Management Services.
"The effect on the broader equity market will be in terms of worries about the government falling short of finances, and the fiscal deficit going up," he added.
The ONGC offer was part of a broader government plan to raise about $9 billion from share sales this fiscal year, an effort aimed at plugging India's fiscal gap and generating funds for schemes for the poor.
But the government has raised only about $250 million through the $1 billion public offer in Power Finance Corp in May, the only divestment so far this fiscal year. It has not provided new dates for the ONGC offer.
Other large planned divestments, including a share sale in Indian Oil Corp of up to $4 billion and a $1.8 billion offer in Steel Authority of India Ltd have also been deferred.
The delay adds to worries for the government, which has been struggling with persistent inflation and a slew of corruption scandals that have weakened its ability to push reforms through.
On Friday, The Reserve Bank of India (RBI) raised interest rates for the twelfth time in 18 months and stuck with its anti-inflationary stance even as growth slows in Asia's third-largest economy.
This followed a decision on Thursday by state-run oil firms to raise petrol prices by nearly 5 percent, adding near-term pressure to stubbornly high inflation.
INVESTORS HAPPY
Investors however, cheered the delay, pushing up ONGC shares as much as 8 percent in Friday trade. The stock closed 5.4 percent higher, its biggest single-day gain in nearly 15 months.
The sale of a 5-percent stake by the government was widely expected to be issued at a discount in an effort to lure investors in a volatile market.
ONGC's share sale, first scheduled for March, has been postponed several times this year due to turmoil in global markets and lingering concerns over government fuel subsidies, part of which are borne by ONGC.
ONGC did not disclose a reason for this latest delay, which comes after the company went on road shows in overseas markets including the United States, London and Singapore, and just days before a scheduled launch for Sept 20.
A source with direct knowledge told Reuters late Thursday that the government had decided to delay the share sale due to poor market conditions.
ONGC said the government would evaluate its decision in due course.
Indian companies raised $7.1 billion in equity in the first half of 2011, down 42 percent from the year-ago period, according to Thomson Reuters data.
Shares in ONGC, the third-largest listed firm in India by market value, have declined nearly 15 percent so far in 2011.
The BSE Sensex is down nearly 18 percent so far this year, making it one of the world's worst-performing markets.
