As the NDA government kickstarts its disinvestment programme for 2014-15 tomorrow — with less than four months to go for the end of the fiscal — there seems little investor appetite for PSU stocks in an otherwise strong bull market for equities.
While the Sensex has rallied by over 16 per cent since the Narendra Modi-led government took charge on May 26, the PSU index — comprising 59 listed state-owned companies — has actually seen a nearly 3 per cent decline during this same period.
This is as opposed to several other sectoral indices (see box) that have jumped anywhere between 10 and 50 per cent in the last six months.
The share price of SAIL, the first in the list to be on the block, has registered a decline by over 10 per cent since May 26. The disinvestment offer entails sale of 20.65 crore shares at a floor price of Rs 83, a shade below the closing of Rs 85.35 today. Its widely believed that in the absence of market excitement. government-owned financial institutions are expected to participate in the disinvestment process.
This lack of market enthusiasm for PSU stocks is attributed to no visible management reforms in these enterprises contrary to initial expectations. In fact, the wait for the new government to initiate policy changes to allow for more operational and managerial autonomyin PSUs goes on.
“There are some great public sector companies but the challenge is how do you turnaround the management or how do you make them professional. Unless you take it out of bureaucratic hands, it’s tough for them to compete in the market,” said Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services.
While ONGC, Coal India and NHPC are next in line where the government will divest up to 11 per cent of its holding, the share prices of the three companies have fallen by 8 per cent, 11 per cent and 21 per cent respectively which will result in a reduced realisation for the government from stake sales as compared to what it could have got six months back. Of course, has PSU shares rallied in line with the broader market, the realisation for the government from these stake sales would have gone up.
The head of a leading investment banking firm said another reason why the market does not have confidence in PSUs is because the government has not kept the commitment it made.
“For NTPC, they promised merchant power rate to NTPC, in case of ONGC they said defined subsidy-sharing formula, for NMDC they had talked about market pricing of iron ore. They made promises and then forgot about them,” said an investment banker who did not wish to be named.