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Finance Friday:The Great PSU sale is on, Government To Raise Crores

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Lo and Behold!! The Indian Government is all geared up for the sale of a lifetime.What’s on offer here? A gamut of Public Sector Units(PSU’s) which will be subjected to disinvestment and a partial stake will be offered to the investors via the Stock Markets.The government is pushing hard to raise capital for social sector and infrastructure projects and selling a partial stake in the profit making companies seems like a prudent decision.Infact, the government recently made it mandatory for all profit making central PSE’s to comply with a minimum of 10% public shareholding.What’s more , the unlisted companies with no losses and a profitable growth have been asked to get listed in the capital markets.

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The markets have reacted very positively to the disinvestment scheme and the PSU companies have enjoyed a sort of bull ride in the markets.The PSU shareholders wealth has shot up by over 1.8 lakh crores ever since the government announced the disinvestment roadmap.The investors are rushing to accumulate stocks given that the valuations are bound to go up once the companies start complying with the 10% holding by either diluting the government stake or injecting fresh shares.

The extent of the moolah that the government can rake in can be gauged by the projected estimates that have been doing the rounds

  • The 5% disinvestment in NTPC is expected to raise around 8100 crores. The money will be raised via a Follow On Public Offer(FPO) and the government’s stake will be reduced to 84~ % from around 89% currently
  • A stake sale of around 20% is expected in SAIL.The funds would be partly utilized to fund SAIL’s expansion process and the government might end up parting with around 10% dilution in its holdings.With a market capitalization of around 76556.97 crores , the cash generation through the dilution should be enormous.

Fund houses have been quick on their heels to latch on the increased investor interest in the PSU sector.So much so , that the much dormant Mutual Fund Sector has come up with fresh offering of NFO’s catering to the PSU niche. Religare PSU equity NFO mopped up around 229 crores from the market at a time when investor confidence was not at its prime in the Mutual Fund sector.

It is clear that the PSU disinvestment has gone down well with the investors so far.The government is also bound to make a killing as far as cash inflow is concerned.The long term benefits however will only materialize if the companies can continue to outperform year after year and share the wealth with investors in the form of dividends.

The PSU stocks like NTPC, SAIL, ONGC have huge market capitalization and a decent track record.The only glitch is the government interference in the pricing mechanism which can deter the profits even though government subsidies are made to compensate for losses.

Do you also have a decent percentage of your portfolio dedicated to PSU stocks? Will you jump in to claim ownership in the new PSU stake offerings that are in store or you think private sector stocks are better when it comes to profitability in Stock markets?

  1. […] year. Slowly but steadily the government is moving forwards towards its plans of disinvestment and unlocking value in favor of the country’s economy in meeting its various social-sector […]

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