PSUs - A lost opportunity - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

PSUs - A lost opportunity

Jun 23, 2000

Most will remember the talk in late 1999 that 2000 will be year of public sector units. They were largely referring to oil and telecom PSUs. The government it seems has scuttled the opportunity of a lifetime. Financial performance notwithstanding, Indian oil and telecom PSUs are very rich. In terms of assets that is. It is however widely accepted that save for some odd PSUs, all others require drastic action if the government was interested in salvaging whatever was left of them. The government seems to have got that opportunity. The markets, even after the recent correction, are still trading at 80% over the lows touched in 1998. However it is clear that the government is determined not to make most of the opportunity.

Just to put things in perspective here are some facts. These pertain to FY98 as the current data has yet to be made available. The capital employed by central PSUs stood at Rs 2,231 bn (i.e. twice the size of the fiscal deficit). The net profit was a meager Rs 137.3 bn, most of which is accounted for by the oil and telecom PSUs. Finally, of the 236 central PSUs, 100 were loss making. A pathetic performance, given that a number of these companies, are monopolies in their respective segments and are receive subsidized funding from the government.

Recently, the British government set the ball rolling by auctioning 3G (third generation licenses) telecom licenses. In the process it raised billion of dollars (it amounted to over 80% of India's central government fiscal deficit). Many countries are now planning a similar auction. Such windfalls help government's rectify any deficit that may have cropped up over the years. Alternatively it could be used to step up social spending. India with its vast geographical base has however failed to capitalize on any such opportunity. As a result, its fiscal situation continues to deteriorate. On the social condition front, one need not elaborate.

Several Indian PSUs offer fantastic investment opportunities at this point in time. Consider the oil PSUs (read BPCL, GAIL) for one. However, government control has stifled their valuations. The incumbent government is making the right noises in favour of disinvestment. But so have some of the previous ones. Expectations are running low. But, once the government (whether this one or the ones in future) were to go ahead, and in all probability they will, expect valuations to rise dramatically. One has to make the call regarding the timing of the disinvestment. Those who get the timing right will find themselves 'in the money'!

Equitymaster requests your view! Post a comment on "PSUs - A lost opportunity". Click here!


More Views on News

CAMS IPO: Should You Apply? (IPO)

Sep 18, 2020

Does the company having 70% market share of the mutual fund registrar business have sound prospects?

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

Sundaram Bluechip Fund: Will Hold the Stable Horses (Outside View)

Sep 18, 2020

PersonalFn briefly outlines the newly launched NFO note HSBC Corporate Bond Fund.

Wait! Don't Chase Smallcaps Now (Profit Hunter)

Sep 18, 2020

Let the markets take a breather before you jump in.

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 18, 2020 03:37 PM