Under NDA, PSU stocks put up lacklustre show
Central government-owned companies have been one of the biggest underperformers in the first four years of National Democratic Alliance (NDA) rule. The BSE PSU index, which gauges the share price performance of 60 sate-owned companies, climbed 50 per cent in three months between April and June 2014 on expectations that the new government’s economic policies would boost the financial performance across sectors.
Four year later, the index is now trading 15 per cent below its 2014 peak. A decline in investment demand has led to the underperformance, according to experts.
Back in 2014, foreign brokerages, including CLSA and Credit Suisse, had released reports giving a strong buy call on PSUs.
The 69 listed-PSUs together reported net profit of ~340 billion in 2017-18, down two-third from the previous year and lowest in a at least a decade. At their peak in 2010-11, these listed PSUs together reported a net profit of ~1.5 trillion.
The profit scorecard would have looked even worse had it not been for soft global oil prices, which proved to be a shot in the arm for the profitability of oil marketing companies. Oil and gas PSUs together reported record profits of ~791 billion in 2017-18, up 133 per cent from the lows in 2013-14.
The plight of public sector banks (PSBs) is now well known, with 19 out of 22 listed lenders reporting net losses in 2017-18, against nine a year ago. The combined loss of state-owned banks jumped 10 times in 2017-18 to ~869 billion, from ~85 billion a year ago. In the non-financial space, the
decline of PSUs is best captured by BHEL. Once the country's largest manufacturing enterprise in terms of revenues and profits, the most valuable non-oil and non-bank PSU, companies’ revenues are down 43 per cent from the 2012-13 peak. The firm’s market capitalisation is down 78 per cent from its highs. India’s capital investment (fixed capital formation) as a per cent of gross domestic product (GDP) declined from a record high of 40 per cent in 2007-08 to 28.5 per cent in 2017-18. Most of the PSUs operating in investment-driven sectors involving large capital spending, including metals, mining and power, were hit by this decline in investment at the macro level.
“Deflationary pressures along with a slowdown in the industrial economy and weakness in the banking sector are key reasons behind the slowdown in PSU stocks since 2014. While private companies used lower commodity prices for margin expansion, state-owned entities could not benefit much from it since there are PSUs on both sides, consumption and production. However, there could be some revival in PSU stocks going forward, since the global economy is heading towards stabilisation,” according to G Chokkalingam, managing director, Equinomics Research & Advisory.
There has been a marginal improvement in the profitability of non-oil and nonbank PSUs in 2017-18, thanks to a surge in metal prices. However, the combined profit last fiscal was still 25 per cent lower than the highs of 2012-13. Global commodity prices witnessed a sharp fall between 2013 and 2015, hitting the finances of government-owned commodity producers such as Coal India, NMDC, Sail, National Aluminum Company and ONGC. The sharp underperformance in PSU stocks is likely to pinch the government, which has set a disinvestment target of ~800 billion for 2018-19. Marquee investors have been offloading their PSU holdings due to weak performance.