Divestment push may lift PSU m-cap
Nifty PSE closes at its highest level since January 2018
The share of public sector undertakings (PSUS) in the total market capitalisation of listed companies — at an alltime low of 10 per cent currently — may get a leg-up from the government’s disinvestment push.
Last week, the government announced the successful sale of national carrier Air India to Tata Sons, India’s first privatisation of a PSU since 2002–03. The transaction is expected to be completed by December.
The development buoyed shares of several PSUS with the Nifty PSE index, on Monday, rising 1.8 per cent to close at its highest level since January 2018. Shares of NMDC and Coal India gained the most at 5.8 per cent and 4.4 per cent, respectively.
In its Budget earlier this year, the government stated that two public sector banks and one general insurance firm would be privatised in FY22. It is also planning a public share sale for LIC and intends to limit its presence only in strategic sectors.
“The Air India sale signals the government's intent to move forward with its ambitious privatisation/divestment agenda,” said a note by Motilal Oswal Financial Services.
With BPCL, Pawan Hans, Central Electronic, Salem Steel Plant, SCI, BEML, and Nilanchal Ispat Nigam in various stages of strategic divestment, there is likely to be further action on this front in the current financial year, the brokerage added. The government is also looking to come up with expressions of interest for IDBI Bank, RINL, Concor, HLL Lifecare, PDIL, and IMPCL for strategic disinvestment.
The NDA-1 government had privatised nine PSU firms — Modern Food Industries, Balco, Hindustan Teleprinters, CMC, Indo Burma Petroleum Company, VSNL, Pradeep Phosphates, Hindustan Zinc and IPCL — between 1999 and 2003. The government had also sold stakes in 19 properties of ITDC and three properties of Hotel Corporation of India.
Listed PSUS have seen a rally at the bourses in the past month and the disinvestment drive augurs well for their fortunes.
“PSUS have rallied on expectations of divestment and are riding the commodity upcycle. This momentum can continue for some more time, especially after the Air India decision,” said Deepak Jasani, head-retail research, HDFC Securities. “It remains to be seen how long the commodity upcycle will last as it has a direct bearing on inflation, something that central banks the world over are increasingly uncomfortable with.”
Several PSUS are involved in businesses linked to commodities, such as oil & gas and metals, whose prices have shot up in the past few months. Global crude oil prices are currently quoting at $80 per barrel and are expected to surge further. Natural gas prices, too, have soared to record highs.
PSU stocks have historically been considered as value picks and are known for giving attractive dividends mainly to meet the government’s revenue targets. The Nifty PSU Bank index, for instance, is currently trading at a one-year forward price-to-earning multiple of 11.1x, which is lower than other sectors except for metals, according to a recent note by IDBI Capital. “There has been significant momentum in the markets over the last few months which is also led by decent sectoral churn. What we are witnessing now is that laggard sectors of the last few years are now participating, including PSUS and the realty sector,” said Sunil Singhania, founder, Abakkus Asset Manager, in a note to investors.