The Indian stock markets have witnessed new highs this year. After a long lull, hopes of an effective Government and revival in the economy have fuelled the market sentiments. New themes are making the rounds in the markets, disinvestment in public sector firms theme being among the key ones. Now that the markets are doing well, via a stake sale in PSU firms, the Government is planning to cash on the same to make the country's financial health look better. As per an article in Livemint, reservation for retail investors will almost double. They may even be offered shares on discount. The big question is: Should investors play the disinvestment theme?
While most of the PSUs are cash free, they are facing huge Government interference because of which they have not been able to realize their true potential. As far as reforms are concerned, while there is a lot of noise, key decisions are yet to be taken. Increase in gas prices is a case in point here. A hike was expected in April 2014. Five months have passed since then, and still there is no clarity.
Similarly, other firms like Coal India Ltd and Steel Authority of India Ltd (SAIL) are grappling with issues like volume growth and internal inefficiencies. Before investors invest their hard earned money, they should keep in mind their risk appetites and the fact that in case of Government owned companies, interests of minority shareholders are often secondary to Government's intentions. As such, investors should avoid getting carried away by the common disinvestment theme. Instead, we believe that they should analyze each offer separately, and take investing decision on the basis of individual merits and risks. To conclude, successful long term investing is all about buying fundamentally strong stocks at attractive prices. Stock offers under disinvestment programme will be no exception.