Disinvestment target achievable, say analysts
The government has set itself an ambitious disinvestment target of ~90,000 crore for 2019-20 (FY20), which, analysts believe, can be achieved but is likely to keep the gains in public sector undertaking (PSU) stocks capped. The government has short-listed 10 central public sector enterprises for disinvestment in FY20.
The government has set itself an ambitious disinvestment target of ~90,000 crore for 2019-20 (FY20), which, analysts believe, can be achieved but is likely to keep the gains in public sector undertaking (PSU) stocks capped.
The government has shortlisted 10 central public sector enterprises (CPSEs), including RailTel, TCIL and Tehri Hydro Development Corporation (THDCL), for disinvestment in FY20. So far in FY19, ~36,000 crore has been raised through stake sale in CPSEs as well as tranches of exchange-traded funds (ETFs) and share buybacks, and faces an uphill task of garnering another ~44,000 crore if the target of ~80,000 crore has to be met by Marchend.
“Initial public offering (IPO) is one way of meeting the disinvestment target in FY19 and in FY20. Another way of doing this is to ask cash-rich and less leveraged PSUs to buy out the troubled/loss-making ones. There have been similar instances in the past, like the REC-PFC and the ONGC-HPCL deals,” says G Chokkalingam, founder and managing director at Equinomics Research.
Amar Ambani, president and head of research, YES Securities, too, believes the target of ~90,000 crore for FY20 can be achieved if the equity market remains supportive. “We believe the Nifty50 level
could be over 15 per cent higher in 2019 itself and sentiment could decisively turn positive in the coming months,” he says.
Given this, analysts believe most PSU stocks will remain under pressure and investors should remain selective while putting money in this segment.
“One cannot paint the entire sector with the same brush. There are PSUs that are doing well and their stocks have taken a beating over the past year. One needs to be selective and investors should not be in a rush to buy these stocks right now,” Chokkalingam advises.
Over the past one year, the S&P BSE PSU index has underperformed the markets by falling over 21 per cent as compared to a 4 per cent rise in the S&P BSE Sensex. All counters that comprise the index have negative returns during this period, with stocks from the banking and finance sectors falling the most, the ACE Equity data show.
“The instrument selection and the timing are critical and have to be optimal. The target is high, but not unachievable. The government needs to plan this carefully and carry out the process through the year and not leave everything for the last quarter of the financial year. The share price performance of PSU stocks depends on both disinvestment activity and the overall business environment,” says Jagannadham Thunuguntla, senior vice-president and head of research, Centrum Wealth.
Central Bank of India, PNB, Andhra Bank and Dena Bank slipped between 48 per cent and 56 per cent. HUDCO, NBCC, IFCI, Shipping Corporation, New India Assurance and SAIL were some of the other stocks in the PSU basket that slipped 44-47 per cent during the past year.
“I think there is a credit crisis that’s brewing, which can keep banking stocks under pressure. The market believes the fiscal deficit could inch higher and there will be pressure on bond yields. In this backdrop, most banking stocks should correct. It is advisable to stay away for now,” suggests A K Prabhakar, head of research, IDBI Capital.