New shareholding norms could be an overhang on PSU stocks

The capital market regulator's move to bring down government shareholding in state-owned companies may have brought cheer to those who wanted the government to be treated on equal-footing with private sector companies.

However, the nearly Rs.60,000 crore of share sales is likely to weigh on these companies' stock performance in the days ahead, according to experts.

"Investors would not be interested in these stocks because some of the PSU stocks have not performed well after the recent stake sales. These stocks will come under selling pressure and could decline by around 3-4% more from these levels," said Ashish Chaturmohta, Head Technical & Derivatives Analysis, Fortune Equity Brokers.

"The price at which the dilution would take place would naturally be lower than whatever will be the current market price at the time. So investors would want to sell shares now and book profits before the issues are even announced," said Mehraboon Jamshed Irani, principal and head (private client group), Nirmal Bang Securities.

On Thursday, the public sector stocks' index declined by about two% after Sebi announced that the government holding across PSUs will have to be brought down to 75% from 90% earlier over the next three year period. In comparison, the Sensex was down 0.18%.

There are currently over 30 government companies whose shares are listed for trading on the stock exchanges. These companies will need to unload Rs 58,547.3 crores worth of shares in the next three years, according to an analysis by Business Standard.

Coal India would account for the lion's share of the stake-sales, with an issue-size of about Rs 36,000 crore. The share price of the company slid 1.9% to close at Rs 386.40 per share.

Next in line is NMDC, with Rs 3,506.78 crores. NHPC Ltd, Neyveli Lignite, Steel Authority of India Limited, Hindustan Copper, SJVN, Central Bank of India and MMTC all have to unload between Rs.1,000 crores to Rs.3,500 crores.

Steel Authority of India (SAIL) fell by 3.9% to close at Rs 94.80 per share. SBI was down 1.2% while ONGC and IOC were down 5% and 2.6%, respectively.

The current buoyancy in the markets would provide sufficient liquidity to absorb the issues, according to G Chokkalingam, founder and MD, Equinomics Research and Advisory.

"Even during the bearish phases of the markets, Qualified Institutional Placements and other secondary market issues were easily absorbed by the market. In the current bullish phase of the market, there will be good appetite for these issues. Besides, the success of the recent QIP issuances could have a rub-off effect on these upcoming stake-sales," he said.

Motilal Oswal,Chairman and Managing Director at Motilal Oswal Financial Services Limited said that the longer term outlook for these companies remains robust.

"Going forward we are likely to see investors' participation in public sector companies and the long term potential is huge. One should not read too much in today's reaction," he said.