In her budget speech on July 5, finance minister Nirmala Sitharaman said the government would continue with strategic disinvestment of select central public sector enterprises.
Any changes in divestment or dividend policies would benefit undervalued public sector undertakings (PSUs) such as Indian Oil, BPCL, Bharat Electronics, ONGC, NTPC, Powergrid Corporation, NMDC and Petronet LNG, among others, which could offer good value to the investors, analysts said. Stocks such as Coal India, Hindustan Copper, ONGC, BPCL, National Aluminium and Indian Oil rallied up to 10 per cent intraday on Thursday over news the government is likely to sell stake in state-owned companies through strategic divestments instead of an offer-for-sale or exchange traded funds (ETFs).
The multiple offerings of CPSE ETF over the past one year has acted as a key overhang for some PSU stocks, which remained flattish during this period. BSE PSU plunged 18 per cent in the last one year against 3.5 per cent decline of the Sensex.
“The news of a possible rethink on selling of government stake at the present low valuations have come as a relief to public sector companies that are anyway trading at attractive valuations,” said Gaurav Dua, senior VP, head, capital market strategy, Sharekhan. “Within the PSU basket, we prefer Bharat Electronics, ONGC, NTPC, Powergrid Corporation and Petronet LNG.”
In the past, public sector companies have grossly underperformed due to the hangover of additional supply of paper by the government to raise resources. Lately, the government also resorted to transfer of its holdings to cash-rich companies or via regular cash transfer by way of dividend payouts.
Stocks such as Steel Authority of India, National Aluminium, BHEL, Gail and Coal India have declined between 20 per cent and 40 per cent since the beginning of the year.
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“The government’s current stance of not willing to sell at distress valuations is a significant positive and that has been the reason for the interest in state-run stocks,” said Naveen Kulkarni, head of research, Reliance Securities. “PSU companies have seen consistent declines because of lots of supply from the government.” Stocks such as Ircon International, REC, Hindustan Aeronautics, NTPC and Engineers India currently offer an attractive dividend yield between 4 per cent and 10 per cent. A few of them like NMDC, ONGC, BHEL, National Aluminium and Oil India are trading at their book value.
“Some of the PSUs with sound fundamentals can offer good trading opportunities for the midterm if government changes its divestment and dividend policies,” said Asutosh Mishra, head of research, institutions, Ashika Stock Broking. “Stocks such as HPCL, BPCL, Indian Oil, NMDC, among others, with clear earnings visibility are currently available at discounted valuations.”
In her budget speech on July 5, finance minister Nirmala Sitharaman said the government would continue with strategic disinvestment of select central public sector enterprises. The government has raised the divestment target for financial year 2020 to Rs 1.05 lakh crore from Rs 90,000 crore earlier.
