With the government ready to roll out its ambitious FY15-disinvestment programme soon, experts believe that long-term retail investors must avoid or have a selective approach on public sector undertakings (PSUs). This is despite a sharp fall from their June 2014 highs and the discount that will be offered to retail investors.
Barring a few names, Coal India (CIL), Hindustan Zinc (HZL) and ONGC, many PSUs lag private companies in wealth creation for investors. Savvy traders, willing to make quick buck out of disinvestment, can have a smooth exit unlike retail investors who struggle selling at the correct moment and end up losing wealth, experts said.
“One needs to know fund utilisation and deployment. It is understood that the government is selling its stake in PSUs to cut deficit. Hence, one needs to be selective despite the cheap valuations or the recent correction in the prices,” said the head of a domestic financial services firm.
The shares of ONGC fell 10% from the high of Rs 472, while CIL has lost about 13% from the high of Rs 423 in June this year. REC has fell about 30% from its three-and-a-half year high of Rs 383.35, while PFC has lost close to 25% from its three-and-a-half year high of Rs 344.20.
The government has so far announced plans to dilute stakes in ONGC, CIL, Rural Electrification Corp (REC), Power Finance Corporation (PFC), National Hydroelectric Power Corp (NHPC) and HZL-Balco. “There are structural issues with most of the PSUs. It will take about two to three years to revive some of these companies. But what after five years, when the new government comes in? It is often seen that structural and management changes often hamper financial and stock performance,” said the head of research of a large domestic financial services firm.
Recently, Sebi had announced several measures to boost retail investor participation in the public offers, including 10% reservation of the offer size in an offer for sale (OFS). Most PSU offerings will be by way of OFS and follow-on public offer (FPO) route. The government is in the process of appointing bankers for ONGC, CIL, HZL-Balco, REC and PFC. As part of the stake-sale plan, the government intends to raise Rs 58,425 crore in the current fiscal year to help plug its budget deficit.