Disinvestment target achievable; PSU stocks to remain subdued, say analysts

The government has set itself an ambitious disinvestment target of Rs 90,000 crore for the financial year 2019 – 20 (FY20), which, analysts believe, can be achieved but is likely to keep the gains in PSU stocks capped going ahead.

The government has already short-listed 10 central public sector enterprises (CPSEs), including RailTel, TCIL and Tehri Hydro Development Corporation (THDCL) for disinvestment in FY20. Thus far in FY19, Rs 36,000 crore has already been raised through stake sale in CPSEs, as well as tranches of Exchange Traded Funds (ETFs) and share buybacks and faces an uphill task of garnering another Rs 44,000 crore if the target of Rs 80,000 crore has to be met by March-end. 

“Initial public offers (IPOs) is one way of meeting the disinvestment target in FY19 and in FY20. Another way of doing this is to ask cash-rich and less leveraged PSUs to buy out the troubled / loss making ones. There has been similar instances in the past, like the REC – PFC and the ONGC – HPCL deals,” says G Chokkalingam, founder and managing director at Equinomics Research. 

Amar Ambani, president and head of rethe search, YES Securities, too, believes that the target of Rs 90,000 crore for FY20 can be achieved if equity market remains supportive. “We believe Nifty50 level could be over 15 per cent higher in 2019 itself and sentiment could decisively turn positive in the coming months,” he says.

Given this, analysts believe most PSU stocks will remain under pressure going ahead and investors should remain selective while investing in this segment.

 

“One cannot paint the entire sector with the same brush. There are PSU companies that are doing well and whose stocks have taken a beating over the past year. One needs to be selective and investors should not be in a rush to buy these stocks right now,” Chokkalingam advises.

Over the past one year, the S&P BSE PSU index has underperformed the markets by falling over 21 per cent as compared to a 4 per cent rise in the S&P BSE Sensex. All counters that comprise the index have negative returns during this period, with stocks from the banking and finance sector falling the most, ACE Equity data show.

“The instrument selection and the timing are critical and have to be optimal. The target is high, but not unachievable. The government needs to plan this carefully and carry out the process through the year and not leave everything for the last quarter of the financial year. The share price performance of PSU stocks depends on both disinvestment activity and the overall business environment,” says Jagannadham Thunuguntla, senior vice-president and head of research at Centrum Wealth.

Central Bank of India, Punjab National Bank (PNB), Andhra Bank and Dena Bank slipped between 48 per cent and 56 per cent. HUDCO, NBCC, IFCI, Shipping Corporation, New India Assurance Company and SAIL were some of the other stocks in the PSU basket that slipped 44 per cent to 47 per cent during the past year.

“I think there is a credit crisis that’s brewing, which can keep banking stocks under pressure. The market believes fiscal deficit could inch higher and there will be pressure on bond yields going ahead. In this backdrop, most banking stocks should correct. It is advisable to stay away for now,” suggests A K Prabhakar, head of research at IDBI Capital.