Public sector companies may look at re-rating of their shares in the hope that the government’s disinvestment plans will get a boost after the successful sale of Air India to the Tata group. However, such processes may not be smooth as any privatization of government-owned properties usually takes more time.
The government announced the first privatization after 19 years, as Tata Sons won the bid for Air India, ending a lengthy disinvestment process.
“We believe this is a positive macro event for India and has the potential to re-rate PSU disinvestment candidates, which trade at attractive valuations,” said Gautam Duggad, Head of Research. Institutional Equities, Motilal Oswal Financial Services Ltd.
He expects the Air India deal to give a major boost to privatization and follow up with the rest of the planned disinvestment. “This bodes well for other big-ticket disinvestment items like BPCL, SCI, Pawan Hans and LIC IPOs,” he added.
Shares of public sector undertakings (PSUs) have risen this year, tracking record gains in the broader market. These stocks look set to beat the Nifty this year for the first time in five years.
The Nifty PSE index has so far gained 51% in 2021, surpassing Nifty, which has gained 30%. In the last three years, Nifty has been underperforming the PSE benchmark. In 2020, 2019 and 2018, the Nifty PSE fell 13%, 5% and 21% respectively, compared to Nifty’s gains of 15%, 11% and 3% during the same period. Since March 2020, Nifty PSE rose 101% against Nifty’s 116% gain.
This month, the Nifty PSE index rose 9% till Tuesday, followed by a sell-off in the last three days, while Nifty rose 3%. Some of the large PSUs this month include MSTC, IRCTC, Hindustan Copper, Union Bank and National Aluminum Company, which rose 30-65%.
Indian Railway Catering and Tourism Corporation Limited on Tuesday became the ninth PSU to join the elite club ₹1 trillion market capitalization Its shares have risen more than 300% so far this year. However, the stock is facing heavy selling pressure as it has lost 16% since Tuesday.
Kotak Institutional Equities, however, said the privatization policy could put most large PSUs on hold and the Center is yet to identify the next set of firms for privatization. The brokerage said the long pending privatization of BPCL and Container Corporation of India will take at least 9-12 months to complete as the Center has not yet sought expression of interest for these PSUs.
“We recognize that many PSUs, irrespective of their size, are witnessing a rapid transition (financial) to challenging industries (fossil fuels) and challenging industries with risk irrelevance. We doubt that companies are adequately equipped to meet the challenges. Continuing government ownership may further hinder them. Anyway, we don’t see much merit in classifying sectors like energy, financial and telecommunications as strategic,” it said.
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