The key to the fiscal numbers in 2012-13 will be the R30,000 crore disinvestment target. Along with the telecom spectrum auction and the 2% additional indirect tax, this is among the three top revenue raising measures in Budget FY13.
Since the finance minister has also given the retail investor a R50,000 tax break if she invests in equities, it is a good time to check if he has made any of the public sector companies attractive for her to invest in. This also gives us space to validate if the disinvestment target will be met. Of course, this is assuming the government approaches the equity market with disinvestment plans (seems a long time ago) to sell the shares of the slotted companies. If it plans to instead ask companies to cross-hold in each other, it is a different policy altogether, which can be completed even in one fine day that the finance minister, with his vast knowledge of panchangs, chooses to anoint.
But assuming it?s a follow-on public offer route, first let?s get ONGC, the perennial disinvestment candidate, off the plate. Its biggest investor LIC must be feeling like a heel now. The R2,000 per tonne increase in tax on domestic crude production announced in the Budget and after the sell-off hurts both, but what should hurt more is Pranab Mukherjee?s assertion (in an interview to FE) that the revision in cess will finance government investment in the company.
Budget papers show the government will spend not a single rupee on ONGC. So the bleeding company will have to finance its 5.6% rise in investment in 2012-13 from its own resources. For this prized asset, LIC has paid R302.6 per share to buy a 4.48% stake. Between Friday and now, the price of those shares has slipped to R272.8. This isn?t about just ONGC; the total investment in the public sector companies by the finance ministry in FY13 will be only 12% higher than in FY12. Within this too, support through loans will come down by 50%, year on year.
Financing the total plan outlay for the sector is therefore entirely the responsibility of the public sector companies, which after paying a R28,086 crore dividend have budgeted for a just 10% rise in additional investment spend in FY13. The dividend paid by them to Mukherjee in FY12 is an almost 20% hike over the Budget estimates for the year. For the next year, his officers have taken this as the baseline scenario. At the end of the year, their ilk will urge the companies to bleed more for the treasury.
The government then does not plan to finance these companies, except the public sector banks (about which a lot has been written), presumably because they are profitable ones that can take care of themselves. Then how is the market to gauge an upside in the prices of these companies?
One of the upsides should be to provide enough cues in the Budget that will improve the working environment for the corporate sector to exploit. But as Budget analysts have pointed out, there is no policy-induced upside in the Budget for the markets to expect the prices of these companies to soar. The other upside for the market will be an examination of the plans of the companies that are lined up for the beauty parade in FY13.
While ONGC seems to be pretty much on the route to trouble, its upstream partner Oil India is in no better position. The company expects to raise its investment in FY13 by only 6% to R3,378 crore. The figures look better only in comparison with the actual spend of FY12. The unfilled subsidy bill will be something the investors will be carefully watching to see how they drain the company.
SAIL, which should be the biggest issue for the year too, is going to be a disappointment for the markets, going by the investment plans. The largest steel public sector company has a flat investment budget of R14,500 crore for next year, unchanged from the Budget estimate for FY12. Here too, there seems a year-on-year rise of 14.8% only because the actual investment numbers went down to R12,630 crore.
Rashtriya Ispat Nigam Ltd is in a worse spot. The company has an investment plan of R1,942 crore, which is 36% lower than the Budget estimates for FY12. It will be interesting to see what upside the disinvestment department is able to stuff into this scrip when it rolls out into the market. Among all its ilk, Hindustan Copper Ltd is in a better position. The lean company has an investment plan of R341 crore that is almost 15% more than the Budget estimates for FY12.
On the policy front, a 2% increase in excise duty will be marginally negative for the steel industry. To some extent, this will be partly neutralised by the increase in custom duty for non-alloy flat-rolled steel to 7.5% from 5%. The rise gives some support to domestic steel prices against China?s cheaper imports.
The only upside the retail investors can bank on as the public sector disinvestment programme rolls out next year is from the global market dynamics. As this piece shows, this is the sole determinant for investors to buy into public sector companies. Indian companies are broadly on an autopilot mode in 2012-13, says the Budget. The finance minister has nothing more to offer them, though he aims to raise R30,000 crore from the sale of their shares.
subhomoy.bhattacharjee@expressindia.com
