Business Standard

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.

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