PSU IPOs give better returns than pvt peers: study

With a host of public sector firms waiting to enter the capital market, investors have something to cheer about as PSUs, which had come out with their initial public offers (IPO) in the last five years, have given better returns than their private sector peers, a study says.

The returns provided by PSUs, which came out with IPOs in the last five years 2004-09, have more than doubled, while their private sector peers gave returns of 3.45 per cent in the same period, according to data compiled by SMC Capitals.

The findings indicate that there exist divergence between the returns of PSU IPOs and private sector peers, with a positive edge to PSU IPOs.

"People have burnt their fingers with the private sector IPOs in the past. Now they would want to reap returns and the investor community will invest in the big-ticket upcoming IPOs," SMC Capitals Equity Head Jagannadham Thunuguntla said.

Pricing of IPOs and strong balance sheet makes PSUs better placed than their private sector counterparts.

The government's aim to divest stake in major state-run firms is set to perk up the IPO space, with about six PSUs, including Air India, BSNL, Oil India and NHPC, gearing up to sell equity sale in the primary market, analysts said.

"The two IPOs of NHPC and OIL would hold the key to revival of the primary market as foreign investor community would be looking at how the demand shapes up," Thunuguntla added.

Between 2004 and 2009, there was as many as 278 IPOs totaling $25.12 billion, of which 88 are currently trading in profit while the remaining 190 were in the red.

In the past five years, of 13 PSU IPOs launched worth $6.2 billion, 12 were trading in profit. However, of the 265 private sector IPOs totaling $18.92 billion launched, only 76 were in the green.

In 2004, when the UPA government came to power with Left as an ally, it had planned to divest stakes in the PSU entities like Neyveli Lignite, Coal India and Power Finance Corporation, but that was stalled by the Leftists allies.

Moreover, with a sharp downslide in the secondary market and a downturn in the global economy, fund mobilisation by the government by way of IPOs declined in 2008.

There was only one PSU IPO of Rural Electrification Corporation, worth Rs 1,421 crore.

In 2007, there were four PSU IPOs, including those of Power Grid Corp and Power Finance Corp worth Rs 5,580 crore.