The finance ministry has already cleared the way for India?s public sector companies to make mutual fund investments. But despite sitting on a cash pile of over Rs 3,50,000 crore, these companies have not ventured to do so. Does it have something to do with public sectorhood? This behaviour recalls the reluctance of the Employees Provident Fund to invest a part of its corpus in mutual funds, despite the ongoing equity boom and prospects for good returns. Indian government and quasi-government entities, it seems, are happy to stay aloof from a wealth-creation phenomenon that has the world?s savviest investors talking and could possibly go down in history as a rare phase of opportunity at the cusp of the market?s emergence into the global big league. Even China?s sovereign investment fund, created to use a portion of its vast foreign exchange reserves to acquire assets of varied kinds, is reported to be scanning world markets for opportunities. So what explains India?s public sector conservatism? After all, the returns on government debt do not cross 7% on an annualised basis, while the Indian equity market has yielded upwards of 20% in the current decade. On a year to date basis, right now, a corpus invested blindfolded in a Sensex-mirror fund would have delivered a staggering 60% odd. Should India?s people at large, as eventual owners of public firms, not benefit from any of this?
Public sector companies are allowed to put up to 5% of their cash surplus into mutual funds. This is a small fraction, but enough to worry company managements about witchhunts to pin any losses on should the investments turn bad. Shamefully, this is not an unfounded fear. Government audits do not always operate with the requisite evaluation expertise on the risks involved in making market investments, and could even end up as scapegoating instruments. It is safer for public sector CFOs to earn modest returns than make moves that could invite scrutiny. It does not help that the department of public enterprise has not responded to requests from public sector companies to issue guidelines on such investments. Investment decisions can easily be made to follow an approved formula that will not invite accusations of arbitrary behaviour. It is time for the department to respond?and let the rest of India share some of the stock market excitement.
