PSU pack largely unscathed in current market meltdown

90 state firms lose only Rs 19,000 crore of market value against Rs 8.1 lakh crore meltdown for all

Public sector units (PSUs) have defied market trend amid current meltdown, limiting notional loss in market value for exchequer. Even as benchmark indices fell over seven per cent since November 8, when the government announced note ban, the average decline in the PSU pack has been only 1.6%. 

In terms of market value, the state-owned entities have only lost Rs 19,350 crore against Rs 8.1 lakh crore by all listed companies. The list comprises 90 listed PSU companies owned by central and state governments. 

This outperformance of PSUs was largely on account of strong performance by public sector banks (PSBs), which have largely registered gains since the move to ban certain notes.

Among PSBs, the top gainers have been Union Bank of India and Corporation Bank, whose shares have rallied more than 15% each. Indian Bank and Bank of Baroda, too, registered double-digit rise each, data compiled from Bloomberg showed. 

Market experts said the rally was on hopes of a recapitalisation of PSBs, softening of bond yields, and deposit mobilisation. Recapitalisation is to optimise the capital structure of a bank.

“The Indian banking sector, especially PSBs, is reeling under bad debts and needs recapitalisation. Diverting funds from note-ban windfall to PSBs’ recapitalisation can improve the health of PSBs and have positive spillovers for the rest of the economy. Further, progress towards a cashless economy will provide a boost for savings in financial assets, which is structurally positive for intermediaries like banks,” said Ravi Muthukrishnan, co-head of research at ICICI Securities. 

Several brokerages have pointed out that the current move of note ban would be a positive for Indian banks, especially state-owned ones. In a note to investors, Edelweiss said increasing deposits in bank accounts and limits placed on withdrawal till December 31 are expected to improve consumer (current and savings) accounts. 

“Moreover, due to the sudden collapse of the cash economy, transaction through banks will go up significantly going forward, especially in the rural region and, hence, a strong positive for PSBs,” the brokerage said in the report. 

Oil and power PSUs such as ONGC, Oil India and Petronet LNG have also done well during the period. 

This outperformance of public-sector stocks has also provided some relief to the government, which has lined up several divestment issues in the next four months to meet its ambitious disinvestment target of Rs 56,500 crore for 2016-17. Of this, the government has so far garnered Rs 21,400 crore, data from Department of Investment and Public Asset Management showed. 

On the other hand, several sectors including automobile, real estate and consumer durables have taken a serious beating during the current phase of market correction. The BSE Auto index has fallen 12 per cent, while the sectoral index for real estate has lost 18% during the period.