PSUs extend losses ahead of disinvestment

Street worried share-sale might be priced at steep discount to market price

Shares of public sector undertakings (PSUs) continued to wilt due to concern that while divesting its shareholding in these entities, the government would sell shares at a steep discount to current market prices.

To comply with the Securities and Exchange Board of India’s (Sebi) minimum public shareholding norm, the Centre would have to sell shares in about a dozen companies through the next eight weeks.

Some of these companies, including State Trading Corporation (STC), Andrew Yule and National Fertilizers, next in line for disinvestment, today traded weak, as some investors exited on fears the government might price the share-sales at a steep discount to the market price, just as it had done in the MMTC stake-sale.

Last week, the government sold about nine per cent stake in MMTC at a 70 per cent discount to the prevailing market price. The move spooked investors in other PSU firms with government holding of more than 90 per cent.

Today, the STC stock fell 5.11 per cent to close at Rs 98.4 on BSE. In the four previous trading sessions, the company lost about 40 per cent of its value. Shares of Andrew Yule fell 7.13 per cent on the BSE to close at Rs 10.16; the company has lost about 15 per cent in the past few trading sessions.

Market experts said a lot of traders had started short-selling shares of certain PSUs, ahead of the impending disinvestment, owing to fears the offers for sale would be priced much lower than current market prices. They are also sure the government would go ahead with the share-sales, as it had told Sebi it would cut its holding in all PSUs to 90 per cent.

“MMTC, STC and Hindustan Copper are trading at rich valuations due to low floating stock. There is nothing wrong with the fundamentals of these companies, but they are overvalued,” said G Chokkalingam, executive director and chief investment officer, Centrum Wealth Management.

Independent stock market analyst S P Tulsian said fears other PSU stocks would be sold at a sharp discount to the market price were unfounded. “There are definitely fears of share-sales, but an MMTC-like discount seems unlikely. Most other companies have better public float…the ones with low free float such as HMT and FACT have very small market capitalisation,” he said.

Tulsian said shares of these PSU stocks were recording weak trade, as there was no “value or short-term triggers to invest in these companies”.

“These stocks might continue to trade weak in the run-up to their disinvestment,” said Chokkalingam.