India oil firm stake sale 'lapped up'

India's sale of a stake in state-run refiner Oil India was "lapped up", an official said, raising nearly $600 million as the government tries to cut its growing deficit.

The Congress-led government of Prime Minister Manmohan Singh urgently needs to raise capital from privatisation with the government's deficit threatening to exceed a targeted 5.3 percent of gross domestic product in this fiscal year.

The sale of the 10 percent stake in Oil India received investor bids that were more than twice the share offer size and raised 31.14 billion rupees ($585 million), according to stock exchange data.

Bidding was good from participants including foreign institutional investors, mutual funds and retail investors, a government official said, according to the Press Trust of India news agency.

The "issue was lapped up by investors across the board", the unnamed privatisation department official said.

The sale was underpinned by a booming domestic share market and partial government deregulation of the energy sector that has allowed higher prices.

The government has raised 69 billion rupees ($1.25 billion) from privatisations -- still a long way off its 3000-billion-rupee target in the financial year to March 2013.

But it has a string of sell-offs planned for the last two months of the financial year, including disposal of stakes in steelmaker Steel Authority of India, leading power utility NTPC and state trading company MMTC.

The government was forced to jettison a few earlier sell-offs due to sluggish share market conditions in a sharply slowing economy.

But it has re-energised its privatisation drive with the stock market trading at two-year highs on investor optimism about an economic upturn.

To ensure the success of the Oil India sale, the government set the floor price at a deep discount of nearly six percent to the market price. It is expected to offer similar discounts for other sales.

Cutting the deficit has become even more vital for the government since global ratings agencies reduced India's sovereign ratings outlook to "negative", jeopardising the country's investment-grade status.