FPI is a mining company that recently opened its initial public offering (IPO). While the company’s common shares comprise a small fraction of its capital structure, they have been trading below their NAV for some time. While this has not created a substantial discount to a potential acquirer, the current discount of about 15% may prompt interest from private equity firms and other groups interested in the company.
While the IPO story is a catalyst for this shift in sentiment, the story goes much deeper than that. For example, it is widely believed that India’s inflation is overstated, but the government’s recent free food program has reduced consumer inflation by over 1.5%, changing the equation for real returns. Another factor is outsourcing. Companies like Foxconn and Airbus are seeing India as the next big story in outsourcing manufacturing. For them, it is a chance to diversify their supply chain and break free from China.