Author: Aaron Chaze

ROUNDUP

By Aaron Chaze

300_Regulars_EM_Roundup_Dec-10

The other black gold: Coal India sparks investor frenzy

Coal India, the world's largest coal mining company and one of the Indian government's mega disinvestments, became the largest IPO ever in India and one of its most successful. The stock ended the first day of trading on November 4 with a gain of 32% over the IPO price. More important, it set the tone for future investor participation in state sell-offs. The IPO raised $3.5 billion for a 10% stake, attracting bids worth $53 billion from domestic and global institutional investors. The Indian government continues to hold 90% of Coal India's common stock. The government hopes to raise a total of $10 billion from stake sales in several state owned corporations before March 2011. It expects to offer stakes in other mining companies, such as Hindustan Copper and Manganese Ore, as well as giant companies such as Steel Authority of India and Power Grid Corporation.


Even as foreign investors remain bullish on India, the Reserve Bank of India's tight monetary policy aimed at combating an alarming rise in inflation is having a noticeable effect. The capital goods sector saw a decline in production by 4.2% year-on-year in September. It experienced a 7.9% year-on-year increase in September 2009. The recent contraction reduced the overall industrial production growth rate to just 4.4% year-on-year for the month. However for the first six months of the fiscal year (April-October) the Index of Industrial Production grew by 10.2% as compared with 6.3% in the corresponding period last year. Economists say Indian companies have cut back on spending as the central bank upped rates six times this year.


India's role in the global economic order received a boost in mid-November when the International Monetary Fund announced changes to its voting shares and funding quotas. India now moves into the top 10 ranking of countries in terms of voting power and quotas (up to 8th position from 22nd) in tandem with Brazil and Russia, which also joined the top 10. India also gets a seat on the IMF's governing board for the first time.