Disinvestment would unlock the value of PSUs

Written by Rishabh Bhandari | Rishabh Bhandari | Updated: Jan 31 2011, 05:53am hrs
fe@campus, a collaborative and cynosure initiative taken by The Financial Express in sync with a variety of higher education institutes representing todays youth, provides students an opportunity to pen their views on trends and trendsetters in the world of business. For this week, we put forth the topic: Can disinvestment of public sector companies revive domestic stock markets Students of the Narsee Monjee Institute of Management Studies, Mumbai, sent us their essays. Here is the best one:

Over the last year, the stock market atmosphere has turned encouraging. Domestic companies have also started reporting good results in recent quarters. But some analysts expect that stock market indices will soon peter out because the uptrend is based on weak fundamentals. However, its more likely that they will rise rather slowly, and not dramatically as we once witnessed. In fact, several factors are at the back of investors' minds. On one hand rising inflation is becoming a dampener, while on the other the slowdown in the demand for consumer goods has become a cause for concern. While domestic car sales are registering decent growth, exports are not seeing the same because of the global demand slump.

There are several aspects that drive the stock market mood. The positive ones push the markets to a high, while the negative ones pull them down. So, the best position a shrewd investor can take is to sell stocks that fetches profits and buy what that holds out a promise. Or, hold your bets till the market atmospherics improve. Investing in the blue-chip stocks of public sector companies is one such card in your hands.

Most of Indias public sector companies are leaders in their fields. In many cases, they have a virtual monopoly. Their balance sheets are debt-free and they are able to show greater buoyancy an a yet-to-be-fully-revived market.

The number of PSUs has increased by 11.21% from 1951 and their profits have touched Rs 80,000 crore (344% growth). Their CAGR for the last 10 years is impressive, at 19.37%. Its an encouraging sign that the government is now more liberal towards disinvestment of its stakes in PSUs to raise capital.

Disinvestment would unlock the value of public sector units and help stir positive sentiments among the investor community. Another significant point is that these stocks are generally available at a discount in comparison to other companies. Hence, there is a great opportunity for investing.

The author is 2nd year MBA student of NMIMS, Mumbai