Distressed PSUs’ stake sales needed

So far the government has divested stakes in public sector undertakings (PSUs) like Cochin Shipyard, Housing and Urban Development Corporation (Hudco) and insurance firms like General Insurance Corporation (GIC) and New India Assurance, etc.

It intends to divest further in many companies, including Hindustan Petroleum Corporation Ltd (HPCL). In addition, the government might mobilise close to Rs 10,000 crore from Bharat 22 ETF, which contains several PSUs.

The most common thing about these divestments is that a majority of them are largely decent profit-making PSUs.

However, in one area where the government could make significant impact for the PSUs concerned or for the fiscal balance of the government itself is the mid-sized PSUs, which are stressed (loss-making or perennially sick) or which are making meagre profits (also pay very poor dividend), but trade at exorbitant valuations on the markets.

Fortunately, the current bull market, which is mother of all previous bull markets in terms of aggregate market cap build up, has rewarded even such stressed and sick PSUs.

The market cap of some of these companies has moved up 100% to nearly 500% from the 52-week low despite many of them not being able to make substantial profits. Coincidently, many of …read more