September 7, was a cruel day for thousands of investors who put their faith in government stocks. When everything appeared to be going in their favour, the tide then suddenly turned against them. The party seems to be over now. The scintillating rally in public sector undertakings (PSUs) in the last one year has given huge returns to investors, but the government’s dithering in big-ticket privatisation has now almost curtailed the year-long bull run in PSU stocks. Investors lost a whopping Rs 11,286 crore of their wealth in PSU stocks as market capitalisation (total market value of all listed PSUs) fell by 8.2 per cent to Rs 1,27,034 crore on September 9 alone, the day when the Cabinet Committee on Disinvestment (CCD) postponed any disinvestment in oil majors Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL). ‘Investors’ dreams were shattered. The CCD decision was a great setback to the investor sentiment in PSU stocks,’ said stock dealer Pawan Dharnidharka, adding, ‘PSU stocks had fallen 5-20 per cent in the last one week. As the government is not showing any remorse about the halt in divestment, prices may go down further’. Most of the PSUs had a dream run on the stock markets last year. HPCL had zoomed by 192 per cent in the last one year, BPCL by 125 per cent, Indian Oil by 74 per cent and ONGC by 149 per cent before falling 5-26 per cent in the last a few days. PSU stocks even outsmarted the rise in general market. Sensex had risen by only 3.25 per cent to 3,131.34 (as on September 12, 2002) in the last one year. On the other hand, BSE PSU Index had shot up by 74.22 per cent from 841.64 to 1,466.34 in the last one year, showing the amazing rise in government stocks. The CCD move to delay privatisation of HPCL and BPCL has made investors suspicious about the intentions of the government. Adding fuel to fire, the number of ministers and politicians opposing the divestment also increased, putting a spanner in the works of Disinvestment Minister Arun Shourie. ‘When it came to the crunch, the government back-pedalled in the last minute. The government seems to be facing major opposition in the case of big-ticket disinvestment. The PSU rally in the market was only based on the optimism that big PSUs will be privatised through the strategic sale route’, said retail investor A.K. Agarwal. Agarwal was one person who understood the benefits of disinvestment. He had purchased 1,000 shares of HPCL at around Rs 105 levels almost a year ago. He was waiting for the bidding in HPCL and BPCL to start for offloading his stake in the market. After the CCD meeting, the HPCL share has fallen from around Rs 275 a month ago to Rs 210 levels now. ‘Although my investment has appreciated by a huge margin, my chance to get a better profit has gone. Now it’s not clear whether divestment in HPCL and BPCL will be done at all,’ he says. Investors have been waiting for bidding to commence to sell their stakes. The IPCL and IBP divestment examples had shown that bidders can quote high prices. IPCL share had gone up from around Rs 30 Rs 150 levels when the divestment process took place. As Reliance bagged the company at a price of Rs 241 per share, it had to make an open offer at the same price as per the Sebi takeover rules. This is a whopping appreciation of over 600 per cent for an investor who acquired IPCL share at Rs 30 levels one year ago. It’s not only retail investors, several mutual funds were big buyers of PSU stocks in the last one year. Several funds lost heavily when HPCL and BPCL plummeted by over 20 per cent on September 9. ‘PSU stocks were must for the portfolios of mutual funds. Now fund managers will think twice before investing in PSUs. Moreover, there will be some churning of stocks,’ said a fund manager with UTI. The fear among investors is that if divestment in HPCL and BPCL can be scuttled by politicians and ministers, other PSUs like MTNL, BSNL, Indian Oil, ONGC, GAIL and others can meet with the same fate. As investors and analysts see it, the government can be quite serious about divestment in PSUs but need not actually do it. The September 7 development may be the beginning of the end of the bull run in PSU stocks. Unless the government changes the course again and privatise the companies as promised.
