FII holdings in Indian PSUs on the rise

Overseas investors are increasingly reposing their faith and money in PSUs, with as many as nine public sector firms including Coal India, PowerGrid and NTPC, recording an increase in FII holdings over recent months.

According to an analysis of 11 public sector units that came out with initial share sales in the past two years, nine companies saw an increase in their FII shareholdings in the quarter ended December, 2010, vis-a-vis the September quarter, while two companies -- Oil India and Engineers India -- witnessed a decline in FII shareholding.

In the case of another PSU that conducted a stake sale, MOIL, data on FIIs' shareholding during the quarter was not available on the Bombay Stock Exchange.

Central transmission utility PowerGrid saw an over seven-fold jump in FII shareholding to 12.05% in the quarter ended December 31, 2010, from 1.65% in the September quarter.

PowerGrid's experience was replicated by Coal India after it made its listing debut in November last year, with the company witnessing a two-third increase in FII shareholding in two months to 5.54% at the end of the December, 2010. As of October 30, the company had an FII shareholding of 3.32%.

Analysts attributed the trend of increased FII holdings in PSUs to the strong balance sheet and long-term prospects of these entities.

"PSUs are generally known for their strong balance sheet, even enjoy virtual monopoly in some of the sector and they have got government blessing. These are some of the reasons which make FIIs comfortable in investing in such entities," SMC Global Equity Head Jagannadham Thunuguntla said.

He further said most of the PSUs come out a lower price band for their initial stake sales than private sector companies.

Similarly, NTPC saw its FII shareholding climb to 3.36% in the quarter ended December from 2.85% in the September quarter. FIIs' shareholding in Shipping Corp rose to 2.32% in the quarter under review from 1.98% in the September quarter.

Interestingly, FII's stake in Rural Electrification Corporation (REC), is far more than in other PSUs, although the increase is not much. The company saw its FII shareholding inch up to 21.22% in the December quarter from 20.4% in the previous quarter.

Despite the government's larger holding in these companies, their operations are based on sound business practices, so the chances of facing corporate governance issues are very less, which is also one of the primary reasons for the increasing FII holdings, CNI Research CMD Kishor Ostwal said.

Iron ore producer NMDC and hydro power firms NHPC and SJVN also witnessed an increase in FII shareholdings in the October-December quarter of 2010 vis-a-vis the quarter ended September.

On the other hand, EIL saw a marginal decline in FII shareholding to 6.83% in the December quarter from 6.98% in the previous quarter, while Oil India saw FII's stake decline to 1.56% in the quarter under review from 1.73% in the September quarter.

Apart from companies that have already come out with their initial share sale, ONGC and IOC -- which are slated to come out with two big-ticket FPOs in 2011, have also witnessed an increase in FII shareholding.