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PSUs to bring cheer to investors - Views on News from Equitymaster
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  • Nov 6, 2009

    PSUs to bring cheer to investors

    The Indian government yesterday took a big step towards firming up the divestment plans for PSUs. And for a change, it was also very specific about its plans in this direction. Yesterday's announcement saw the government make it mandatory for at least 10% of the equity of all profit-making public sector firms to be held by the public. Further, all unlisted PSUs that meet the following three criteria will have to opt for listing on the stock exchanges by divesting similar amounts

    * The ones that have a positive net worth,
    * No accumulated losses and
    * Have had a positive bottomline for three consecutive years.
    The cabinet proposal has also suspended the rules governing the use of divestment proceeds for a three year period beginning April 2009.

    As per reports, there are in all about 44 listed public sector entities. Out of this 9 have a government holding of over 90%. After yesterday's announcement of a minimum of 10% that should be in the hands of the public, the government will have to compulsorily divest its excess stake in these. This itself is estimated to fetch it about Rs 255 bn at yesterday's closing prices. The funds raised through divestment of unlisted PSUs will be over and above this.

    What makes this significant for India is that this will help the government to some extent alleviate its precarious position as far as the fiscal deficit is concerned. The fiscal deficit is estimated to be Rs 4 trillion for FY10, which would stack up to a huge 6.8% of the GDP for the year. This would make the situation, which has been rather tricky to handle due to the stimulus measures that the government has been doling out to assuage the effects of the global financial crisis, even graver.

    For the government, this move will help it fund its increased level of expenditure without resorting to a higher level of borrowings and ease the resultant crowding out of funds for the private sector.

    For investors, this move means that they will now get to own a larger share of many profitable PSUs to which they did not have access to earlier. And as we have seen, with the kind of stability and growth that PSUs have seen even in the times of crisis, this should surely bring a smile on their face. This smile was more than evident from yesterday's last minute sudden recovery in the markets post the above announcement.



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    5 Responses to "PSUs to bring cheer to investors"

    ramarao m

    Nov 17, 2009

    the FIIS who have been fuelling the volatility should be tamed by either barring them from direct participation or slapping a hefty premium on them. somebody must take them on. this is an oppertunity the govt. shd not forego. in case they cant do it, they shd favour the mutualfund industry by directly allotting a hefty percentage of stocks to them, with a lockin period.,perhaps


    g.s. bisht

    Nov 16, 2009

    i have purchase the ntpc and rnrl share I know that what is the future of these share
    with thanks



    Nov 15, 2009

    GOI can distribute the shares of PSU's evenly and based upon some norms so that every Indian investor can participateo.
    1.A portion can be can be alloted on rights basis at a lesser IPO price.
    2. Total volumes of shares are to be didided by number of applicants and and that number of shares are to be alloted to all .
    3.The remaining unalloted shres should be distributet proportinate to their applied volume.


    Gurmukh Singh

    Nov 11, 2009

    Hi All,

    Its a gud news that government is planning disinvestment in some PSU's. But for the common or small investors it is very hard to made a bid. Atleast 25% of the shares should be reserved for the investor with annual income of 2.5 lacs or less, and 10% for the income between 2.5-5.00 lacs. Than a small investor like me can invest in these shares.
    guru singh


    Brij Kumar Singh

    Nov 8, 2009

    Govt should consider following points during disinvestment of PSU.
    1.Preference to small investors by giving rebate of 10% as was done in ONGC.
    2. FII,s should be allotted at a premium of 10%.
    3. Institutional investors be allotted at a premium of 10%.
    This will encourage the real disinvestment to Indian public.

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