PSU stocks surge on Sebi's move to allow promoters for auctioning of stakes

MUMBAI: Shares of smaller state-owned companies surged on Wednesday amid hopes Sebi's move to allow promoters to offload their stakes through auctions will ease the government's efforts to sell them at better prices. The government has been holding back public offerings of these companies for a while following feedback from investors and merchant bankers that such issuances may not sail through because of steep valuations.

But, with the new window, investors feel the government will be in a position to negotiate better prices for the stake sale.

"The government can now ensure speedier sale of stakes in its companies, especially in those PSUs (public sector units) where it holds more than 90%," said Pranjal Srivastava, head - equity capital markets at ICICI Securities.

Among shares of companies with government holding over 90%, MMTC, the biggest gainer, shot up 18% to end at Rs 731.60, Hindustan Copper rose 15% to Rs 253, National Fertilizers was up 15.21% at Rs 64 and Stock Trading Corporation gained to 13.67% to Rs 185.80.

But, these gains may not sustain as valuation of these shares are considered pricey. Analysts believe worries about the probability of such auctions going through due to high valuations will resurface soon because most institutional investors are conscious about the price they pay in uncertain times.

"Valuations are not justified for most of the stocks. Besides, PSUs consist of 33% of total market cap. So government's stake auction in even a few companies will run into multiple thousand crores," said AK Prabhakar, SVP, Anand Rathi Securities. "I don't think that kind of liquidity is available in the equity market right now."

The government has a target of Rs 40,000 to meet from sale of shares in its companies to control its fiscal deficit.

"Market conditions are still choppy. Will such a stake sale be successful is anybody's question," said Abhijeet Biswas, director, Equirus Capital.

Some analysts said the market's expectation that the government is in a position to sell shares at premium valuations in the auction process may be far-fetched. Many of these shares have spiked on lower volumes because of lower public shareholding.

"The rally has been in those stocks where the float is low, and there is a possibility that they will fall in a few days," said Shrikant Shetty, VP - investment advisory, Unicon Securities. "Especially at these prices, it looks like the auction price will be lower," he said.