M-cap share of PSUs at record low of 9.7% despite a strong rally in market

Continue to cede ground to family enterprises, private sector firms

The central government-owned enterprises or public sector undertakings (PSUs) had yet another bad year on the bourses, despite a strong rally in the broader market. 

The combined market capitalisation (m-cap) of PSUs has been down 16.6 per cent since the beginning of the calendar year, against 18 per cent rise in m-cap of all listed companies during the same period.

As a result, the central PSUs’ share in total m-cap declined to a record low of 9.7 per cent, even as they continued to cede ground to family-owned enterprises and private sector companies. Their share was 13.8 per cent a year ago, 25 per cent five years ago, and 32 per cent at the end of March 2010.

While in the broader market, every two of three listed companies witnessed a rise in m-cap, a majority of the PSUs saw a decline in their stock price. 

In all, 45 PSUs witnessed a decline in m-cap in the last 12 months and only 27 gained during the same period.

The 72 listed PSUs in Business Standard’s sample now have a combined m-cap of Rs 17.3 trillion, down from around Rs 20.8 trillion at the end of December 2019. 

In the same period, the combined m-cap of all listed companies in the Business Standard sample increased from Rs 150 trillion to Rs 177.8 trillion. 

At their current levels, PSUs’ m-cap is the lowest since March 2016 and at the same levels seen 10 years ago.

At their current m-cap, PSUs are now the smallest segment of the market - even smaller than the listed Indian subsidiaries of multinational corporations (MNCs). The listed MNCs, such as Hindustan Unilever, Maruti Suzuki, Nestlé India, and Colgate-Palmolive, now have a combined m-cap of Rs 18 trillion - up from Rs 15.4 trillion a year ago.

Till three years ago, PSUs were the second-largest group on the bourses in terms of m-cap, after family-owned businesses.

PSUs have been one of the biggest laggards on the bourses in the past decade and have not benefited from the rally in the broader market. 

The combined m-cap of all listed companies is up 87.3 per cent since March 2016, against 2-per cent decline in the m-cap of PSUs during the period.

The analysis is based on a common sample of 1,060 companies either part of BSE500, BSE MidCap or BSE SmallCap index. 

The m-cap is the arithmetic sum of the m-cap of all listed companies and is not adjusted for cross-holdings between firms belonging to the same business group. 

The PSU sample includes quasi-government companies owned and promoted by other PSUs and not owned by the President of India directly. This includes Hindustan Petroleum Corporation, Mangalore Refinery and Petrochemicals, Indraprastha Gas, Petronet LNG, and SBI Life Insurance, among others.

The poor showing by PSUs in 2020 is attributed to a decline in the share price of industry heavyweights, such as State Bank of India (down 20 per cent year-to-date), Oil and Natural Gas Corporation (down 27.7 per cent), NTPC (down 16 per cent), Indian Oil Corporation (down 28.2 per cent), and Coal India (down 35.6 per cent).

While SBI suffered due to investors’ fear of a rise in bad loans due to Covid-19 lockdown, the share price of oil and gas PSUs were hit by low oil prices.

In contrast, it was a good year for defence PSUs, such as Bharat Electronics, Hindustan Aeronautics, and Bharat Dynamics, and metal producers, such as Steel Authority of India, but a rise in their m-cap was not enough to move the needle, given their small size.