Country’s leading money managers have urged the government to initiate action for arresting the underperformance of public sector undertaking (PSU) stocks. Many stocks in this universe are grossly undervalued and a multi-pronged approach may even lead to doubling in market value, they have told the centre.
"Many of the PSU stocks today are available at deep value and much below their intrinsic value. Most of these names are sector leaders and are companies which are fundamentally sound given their inherent strength in their respective sector. Given the prevailing low interest rate environment, a combination of buy back, dividend, coupled with no further divestment is likely to help these names to recover to their intrinsic values," said S Naren, Chief Investment Officer (CIO), ICICI Prudential Mutual Fund (MF).
The comments were addressed to Anurag Thakur, Minister of State — Finance & Corporate Affairs, at the India Financial Conference 2020 organised by ICICI Securities.
Prashant Jain, executive director and CIO, HDFC MF said the share of PSUs in total market capitalisation has slipped from 18 per cent to 8 per cent. He suggested slew of measures that will help prevent further market cap loss.
On a year-to-date basis, the Nifty PSU index has declined 22 per cent, while the benchmark Nifty has gained 5 per cent. Jain said the government should abstain from divulging the disinvestment target for every financial year during the Union Budget, as it dampens investor sentiment towards PSUs.
He further said that the government should set a floor price for every PSU below which it won’t divest any holdings. He further said that the government should opt for the open market buyback route instead of the tender route buyback as was done in case of HPCL recently.
“Under the open market route, the government may lose out by not being able to tender its shares in the buyback. But it will indirectly benefit the government as the market value of the company could increase. Government should try this on an experimental basis,” he said referring to the rally in HPCL shares this month.
Jain said the dividend yield offered by several PSUs which much more than the yield government pays to borrow from the debt market.
Fund managers have also requested the government to avoid divesting shares of PSUs under the exchange trade fund (ETF) route as it depresses stock prices in the secondary market. Navneet Munot, CIO, SBI MF said India deserves to grow at much more than 5 per cent and urged the government to take supportive action.
Speaking at the same event, Mahesh Patil, CIO-Equity, Aditya Birla Sun Life MF said banks will have to step up lending to support the economy.
“PSU banks are no well capitalised. The government will have to tell the banks to take more risks. This will help get the economy back on track,” he said.