• OUTLOOK ARENA
  • VIEWS ON NEWS
  • JUNE 10, 2003

Disinvestment: Will it be a trigger?

Indices have been roaring and are on an uptrend since the beginning of the current fiscal. For a long time before that, despite the positives, markets remained subdued due to the overhang of the global slowdown concerns, geo-political spats and the fears of a monsoon failure on the domestic front. However, now that the monsoons have arrived, market sentiment seems to have perked up. Factors like disinvestment have also played their part in providing a fillip to the sentiment. But unlike last time, investor perception towards disinvestment seems to be different.

Equitymaster.com conducts a weekly poll. A couple of them conducted in recent times focusing on disinvestment (directly or indirectly), have been represented in the charts below. The charts indicate people’s view towards the process of divestment as a necessity for India’s economic growth and also as an investment story.

Poll I
Poll II

Poll I:
This poll was conducted in the scenario of reports of delayed monsoon. The above chart clearly indicates that almost 50% of the people who voted believed that sluggish reforms are a threat to economic growth (conducted in May 2003). At the same time, over 1/3rd of the total had concerns regarding below normal monsoons. The rest vouched that any adverse developments on the global front is likely to have an impact on the Indian stock market.

Poll II:
The second poll was conducted in June 2003, after the announcement of disinvestment schedule by Mr. Arun Shourie. Despite postponement of the divestment process in the past, markets continue to believe in Mr. Shourie’s commitment. 59% of those voted have expressed confidence in government’s divestment intentions. However, the rest 41% views were equally strong.

Stock market verdict coincides…
The rally in PSU counters seems to vindicate that markets are also viewing the disinvestment process in a positive way. Consider the table below.

March 31, 2003June 9, 2003Change (%)
BSE Sensex 3,049 3,337 9.5%
HPCL 294 317 7.6%
BPCL 222 267 20.3%
Engineers India 245 298 21.6%
NALCO 71 98 38.0%
Container Corporation 216 310 43.5%
Shipping Corporation 51 77 51.3%

PSU stocks (barring HPCL) have outperformed the Sensex by a huge margin in the last couple of months. With the divestment of the two refining majors, HPCL and BPCL, expected by the last quarter of the current fiscal, both these stocks seem to be back in favour. Among others, the government is likely to file the draft prospectus for Nalco's public offer with SEBI by August 2003. Shipping Corporation of India (SCI) is also up for sale with companies like Videocon and Essar Shipping in the bidding fray.

Our view…
Though Mr. Shourie’s commitment can be hardly challenged, select parties in the ruling coalition do not share his vision. Neither does the opposition! With general elections in government’s focus already, investor’s should view the process of disinvestment with caution. There is no point in blaming the government for the same. Having said that, select PSUs offer good long-term investment potential, not just based on disinvestment but also on fundamentals.

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 (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst)
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