Falling share prices likely to hit Centre's disinvestment target

The Centre’s disinvestment target of raising Rs 1.05 trillion for 2019-20 may take a hit as the stocks of several public sector undertakings (PSUs) hit all-time lows on Thursday. Some of these are trading at multi-decade lows. The BSE PSU index is down 22 per cent in the trailing 52 weeks and 16 per cent since January.

In comparison, the Sensex is down 4.7 per cent in the past 12 months and is still in the green for 2019, with gains of 1.1 per cent. The target for disinvestment receipts was increased to Rs 1.05 trillion for FY20 in the Budget. It was raised from Rs 90,000 crore in the interim Budget presented in February. The government will further look for consolidation of PSUs, along with their strategic sale, in the non-financial sector, Finance Minister Nirmala Sitharaman had said.

The data shows while some of the stocks such as Oil India, GIC of India, Coal India and MTNL touched new lows on Thursday, SAIL, Shipping Corporation of India and ONGC hit multi-decade lows (see chart).

Analysts said with the economy slowing down and corporate earnings expected to fall further, the markets would remain under pressure — with PSU stocks taking the maximum hit. “Consistent with the earnings downgrades and assuming a further 3 per cent cut to FY21 estimates, we revise our March 2020 Nifty target to 11,880 from 12,900,” said a Nomura report.

The PSUs have been worse affected as they are largely present in investment and capex-related sectors such as capital goods, power, metal and mining, and commodities. Earnings growth for firms in these sectors has been hit due to a lack of private sector capex. There has been a general deterioration in the balance sheet of central PSUs in the past few years due to dividend pay-outs despite poor profitability. The combined borrowings of 51 central PSUs were up around 18 per cent YoY in FY19 against 10.9 per cent YoY growth in their operating profit and 17 per cent in net profit in the last financial year. In the same period, their cash reserves were down nearly 11 per cent as many paid dividends and spent cash on share buyback. Together, these PSUs reported debt to equity ratio of 0.76x in FY19 —  the highest in at least a decade.

Investment bankers said the falling share price of PSUs would mean that the government would not only miss the disinvestment target but also not get good valuation.