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Govt loses Rs 6 trillion in market rout as PSU stocks take a beating

Jash Kriplani/Mumbai 11 Oct 18 | 11:30 PM

The sharp fall in markets has dealt a telling blow to the government. The value of government holding in listed PSUs has reduced by Rs 6 trillion from their one-year highs. An analysis of data from Capitaline shows the 41 state-owned stocks have halved from their 52-week highs and another 32 are currently trading at 12-44 per cent below their 52-week highs.  

Experts say investor sentiment towards the PSU space is at one of its lowest points. “The PSU space has underperformed the most, whether large-caps or mid-caps. Investors don’t like it when the government compromises on economic rationale. The government’s recent move, asking oil marketing companies (OMCs) to bear the burden of the price-cut, has shattered investor confidence," said an analyst. 

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In a client note, Stewart and Mackertich said the recent decision by the government, which signaled roll back of price deregulation, has severely affected sentiment. Shares of several PSUs, not just those in the energy space, have taken a beating in the past few sessions following the decision to cut the fuel prices by partially passing the burden to OMCs.

BEHIND THE CURVE

Share of PSUs in total market cap of BSE continues to slide despite new listings


Shares of OMCs have lost 16-26 per cent of their market value. The oil marketing companies – Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) – are currently trading 40-57 per cent below their 52-week highs. The government owns 56.75 per cent stake in IOC and 53.9 per cent stake in BPCL. ONGC, which is also a government-owned company, holds 51 per cent stake in HPCL.

Besides OMCs, banks have been a major drag on the market value of the government’s holdings. Data from Capitaline shows that at least 16 state-owned banks are trading at 44-70 per cent below their 52-week highs.

The banking system is currently grappling with gross non-performing assets of Rs 10 trillion, with bulk of the bad loans sitting on the books of state-owned banks.  

Punjab National Bank and Central Bank of India are among the worst performers, trading at around 70 per cent below their 52-week highs.

Experts say that the sentiment towards state-owned banks will improve only when there is clarity regarding some of the key accounts.

“The trigger for state-owned banks will come from the resolution of the Essar Steel account and the Binani Cement account. The Street also needs clarity on the IL&FS issue," said S P Tulsian, an independent market expert.

In the last 12 months, the government has launched eight public issues, seeking to mop up Rs 277 billion. However, five of these companies are trading at 24-48 per cent below their adjusted issue price.

Experts say the sharp drop in PSU shares doesn’t bode well for the government’s disinvestment programme.

The government has set a disinvestment target of Rs 800 billion for the current fiscal year. Achieving the target will be vital for keeping the fiscal deficit in check. So far, the government has raised only a fraction of the target.

The underperformance of PSU shares comes at a time when the BJP-led government’s current tenure is nearing its five-year term. Interestingly, when the government came to power four years ago, investors had lapped up PSU shares on hopes of policy reforms.

“When the BJP Government won with thumping majority, it was widely believed, as it was part of the manifesto of the BJP/NDA that the PSU companies may see major reforms. Hence the BSE PSU sector outperformed with around 20% gains in the first few days of the formation of the government," says the note by Stewart and Mackertich.

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Sensex

Company Price Gain (%)
Sun Pharma.Inds.608.402.52
Kotak Mah. Bank1,199.551.83
Vedanta211.151.51
Hind. Unilever1,579.201.16
ITC288.450.73

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