The government's move to trim its holding in state-run insurer General Insurance Corporation of India (GIC) rattled the market almost instantly. The moment the shares were put on offer through an Offer for Sale (OFS) on Tuesday, the stock began sliding fast and quickly racked up a 6.37% fall.
What the government is actually doing
The plan is to sell up to 5% of GIC, with one clear goal in mind: bringing roughly Rs 3,000 crore into the government's coffers. For now, a firm 2% equity stake has been put up for sale, and if demand holds up, an additional 3% can be sold under the green shoe option. Put together, that takes the potential sale up to the 5% mark.
In all, the government is offloading more than 8.77 crore shares at a floor price of Rs 352 per share. If the sale goes to plan, it should fetch the treasury close to Rs 3,000 crore.
Why the stock fell despite the discount
What stands out is that the shares were offered at a 10% discount to attract investors. The cut was steep enough that, against a market price of Rs 387, the stock was placed roughly Rs 35 cheaper. When trading opened on Tuesday, the price for investors was fixed at Rs 352.
Even the lower price could not steady sentiment. The very news of the government paring its stake put investors on guard and selling set in. By 12 noon, the GIC share had dropped 6.37% to Rs 362.60.
When retail investors get their turn
This OFS runs over two days. Institutional investors got first access on Tuesday, while ordinary retail investors will get their chance to put in money on Wednesday. There is a catch, though: by the time the retail window opens, the stock could slip even further.
The bigger disinvestment picture
According to Arunish Chawla, Secretary of the Department of Investment and Public Asset Management (DIPAM), just before this announcement, GIC closed 2.55% higher at Rs 388.35 on the BSE on Monday. But the slide began as soon as the sale opened on Tuesday. Notably, the government has already raised Rs 13,389 crore this financial year by selling stakes in public sector undertakings (PSUs).
How the stock has performed
Over the long haul, GIC has rewarded investors well, jumping 92.09% over the past three years. Its recent run, however, tells a different story. The stock has fallen 5.81% over the last one year, and on an annual basis it is down more than 4%. The pressure was sharpest in the past week, when its price cracked by more than 6%.
