Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
PSUs in the reckoning! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 10, 2005

    PSUs in the reckoning!

    Government intervention continues to be pervasive in the Indian economy even if on a smaller scale than earlier. The need for the state to 'guide' the industry and economy in a way that the targeted growth is achieved remains. In today's context, state intervention means reforms in the existing PSUs and encouraging them to take advantage of their massive scale to reengineer India's industrial progress. In this backdrop, we had asked our investors as to what is their outlook towards PSUs going forward. A majority (58%) opined a positive view, while only 18% had a negative stance. The remaining (24%) remained neutral.

    A historical analysis of the public sector undertakings clearly outlines the fact that the so 'perceived' laggards have done their best to discard this image over the past couple of years. Be in terms of shedding unnecessary baggage or improving efficiency levels, the PSUs have exhibited a noteworthy difference in their modus operandi. Some like SAIL (Steel Authority of India Ltd) have authored one of the most fascinating turnaround stories in the history of India Inc. Going forward, we see the picture shaping up no different. The reasons for the same could be cited as follows:

    • GDP growth: A GDP growth target of 8% cannot be achieved without the industry behemoths contributing to the same. Most of the public sector enterprises enjoy economies of size and scale. They not only have the capacity to cater to the incremental demand but also the reach to deliver the same. It is thus pertinent for these entities to run profitably and thereby contribute handsomely to the country's economic evolution. If one tracks the profitability margins of these entities over the last few years, the trend shows a steady northbound direction. Not to mention that most PSUs being index heavyweights, their profitability over the years has taken the Sensex to new heights.

    • Opening up of the economy: The constraints limiting the performance of PSUs had remained unassailable for a reasonable period. Nevertheless, the opening up of the economy coupled with higher FDI limits and stiff competition from private sector enterprises has forced the PSUs to roll up their sleeves. Liberalisation of the economy and inviting foreign participation in domestic enterprises has only accelerated the process.

    • Operational reforms: Operational flexibility and autonomy being paramount for improved efficiency, the government has slowly but steadily accorded these to the PSUs. PSU banks, for example, are now allowed to frame their own HR policies and undertake cost cutting initiatives. To induce better governance and operational transparency, Securities and Exchange Board of India (SEBI) has also recommended that 50% of the board of directors should be independent candidates. Also, the ad hoc group of experts (AGE) on empowerment of central PSUs has recommended that boards of profit-making PSUs be allowed to reduce government stake up to 51% by raising capital from the market. The expert group recommended that the navratnas, mini-ratnas and public sector enterprises with a three-year profit making record should be allowed to reduce government stake to 51% with the consent of Parliament. Partial privatisation is expected to straighten out the creases in their operational techniques. Such reforms are thus directed towards making the PSUs competitive to their private sector counterparts.

    • Dividend payout: PSUs have, are and will remain attractive 'dividend stocks'. This is because the government garners a major portion of its revenues from their dividend payout. It will thus be in the interest of the government that the PSUs continue to post robust bottomline and share a generous portion of it by way of dividends.

    To conclude...
    The PSU sector is an interesting story unfolding. If the India growth story is to hold true then these entities will be among the first ones to bask in its glory. With scale being pertinent for survival and consolidation being the norm of the day, the elephant sized PSUs stand to benefit. All that needs to be seen is whether they can capitalise on the economic buoyancy and succeed in regaining their lost glory.



    Equitymaster requests your view! Post a comment on "PSUs in the reckoning!". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)