23rd November 2009: Since past few months, the market atmosphere is very encouraging; with companies reporting good results in the recent quarters and commerce industry back on track. But recent reports suggest that the index will soon fail to carry out the promise. Rather it is likely that the index is likely to it will rise further slowly and not drastically. There are several factors involved: On one hand: is the rising inflation while on the other is the increasing demand for engineering goods. Domestic car sales rose while rate of exports is receding because of global slump. Many such factors regulate the market according to their respective forces. The positive ones push the markets to a high while the negative ones will pull it down. So the best position is to sell what fetches profits for you and buy what holds promise and is lying low. Investment in Public sector companies is one such card in your hands.
Most of the PSUs are leaders in their category, and in many cases they have a virtual monopoly. Their balance sheets are virtually debt-free and are able to show greater buoyancy in economic downturn. The public sector survey (2007-08) showed that numbers of PSUs have increased by 11.21% from 1951 and the net profit has augmented to Rs. 80000 crores (around 344% growth). Since last 10 years, CAGR of the same is around 19.37%. Look at Oil and Natural Gas Corporation (ONGC) with P/E at 17.78 while Industry P/E at 18.13 which shows that the stock is slightly undervalued. If you look at the future prospects, it expects to grow at 15% by 2011-12, with investment over Rs. 50,000 crores in developing new oil and gas fields. Other entities which have shown similar growth story before are NMDC, MMTC and Neyveli Lignite.
BSE has 80 PSU companies listed. The calendar shows that PSU index with gain of 66.45% underperformed the benchmark Sensex with gain 72.87%. Few stocks are heavily overvalued, like NALCO, with P/E at mammoth 42.82 while the industry floating around 13.57. Another issue is that the PSU stocks are not all-weather investments since they’re heavily dependent on the government at the moment and their policies.
With evolving markets, the government is now more liberal towards disinvestment of its stakes in PSUs to raise capital. This approach would unlock the value of PSUs and help stir up positive outlook among investors. Even in the mutual fund domain, Fund managers are betting on this sentiment by launching new equity-related PSU funds. Another significant point is these stocks are generally available at a discount in comparison with other companies. Hence there is great opportunity for investing.
Markets welcomed the government’s initiative to raise capital worth Rs. 8100 crores by selling its five percent stake in NTPC. The divestment process can begin with a bang and continue to create new milestones. With all these offerings, the shape and size of the Indian capital market will change forever, and for good.
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