The government has renewed its focus on improving the market capitalisation of state-owned companies and banks in line with the profitability and other financial parameters.
Sources said state-owned companies are increasing their interactions with institutional investors to look at ways to study the reasons for lag in their performance and how it can be improved. Even as consumption-focused government-owned companies such as IRCTC, IGL, MGL have done well on stock exchanges, most are lagging their private sector counterparts across sectors.
Given that equity benchmark indices have made lifetime highs after crashing in March due to sudden shock of Covid-19 pandemic on the economy, the recovery in stock prices of government-owned companies has been less than impressive, with foreign portfolio investors continuing to prefer private companies. Low valuation is a concern for the government as it has a heavy disinvestment pipeline.
“This issue has been discussed a number of times. We are very clear that companies have to work on whether in terms of investor outreach or other issues to improve their market capitalisation. In terms of business volumes, many of the government companies are leaders in their respective sectors, but do not command the kind of valuation we would like them to have based on key parameters,” a senior government official said.
While the overall markets witnessed a sharp rise, the state-owned companies lagged in performance at the stock markets. They have, however, caught up between November and December. While the Sensex jumped by 34 per cent between April and October, and the mid- and small-cap indices at the BSE rose 41 per cent and 55 per cent, respectively, the BSE PSU index was up by just 2.2 per cent.
However, between November and December, they outperformed the Sensex and mid- and small-cap indices. While in November the BSE PSU index rose 16 per cent against the Sensex rise of 11 per cent, the index has risen 10 per cent in December as against the Sensex gain of 4.4 per cent.
A senior fund manager with a leading mutual fund said that investors have moved towards PSU stocks over the last few weeks as they offered a lot of value because of attractive valuation. “Institutional investors are looking for value pick at this time when the overall market has recovered significantly. A good quality company available at relatively lower valuation is attracting investors as of now,” he said.
With economic activity returning to normalcy and a vaccine against coronavirus looking within reach, equities are expected to remain a preferred class of investment amid a lower interest rate environment and surplus liquidity in domestic and international markets.
“Some investment bankers have raised issues of low public float being one reason behind state-owned firms not being able to attract enough institutional flows. We are working on these issues and a number of offers for sale (OFS) are being lined up to raise receipts as well as to enhance public float,” the government official added.
There have been some concerns over the performance of PSU stocks over the last one year and that led to FPIs reducing their holdings in several companies. Even as FPIs pumped in a net of Rs 1.56 lakh crore into equities between April 1 and November, state-owned companies did not get much attention.
Shareholding data available at BSE shows that in case of ONGC, while the FPI holding declined from 8.65 per cent in December 2019 to 7.69 per cent in September 2020, Indian Oil Corporation saw the FPI holding fall from 7.64 per cent to 6.07 per cent in the same period. Even, in case of SBI, FPIs reduced their holding from 10.98 per cent in December 2019 to 7.75 per cent in September 2020.
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