)
The government’s strategy to sell shares of its companies at lower prices to reach its disinvestment target has drawn flak from fund managers and analysts. The criticism comes in the wake of sharp declines in share prices of state-owned companies, which have been dumped by investors and traders with an intention to buy back at lower prices.
“The entire disinvestment drive is creating negative sentiment among investors,” said Sandip Sabharwal, head of portfolio management services at Prabhudas Lilladher. “On a continuous basis, incremental disinvestment is happening at prices cheaper than before.”
Analysts believe the government can afford to start selling at higher prices as it is only just short of meeting this year’s revised disinvestment target of Rs 24,000 crore. In the past one month, the government has sold shares in Rashtriya Chemicals and Fertilisers (RCF) and National Aluminum Co Ltd (Nalco) at multi-year low prices. Also, shares of the two disinvestment candidates — MMTC Ltd and Steel Authority India Ltd — identified for this year, have traded weak.
Coal India, the world’s biggest coal miner, today became the latest company to get a beating on reports that the government will sell 10 per cent holdings as part of next year’s disinvestment programme. Shares of the company closed near its one-year low at Rs 302.70, down Rs 17.30, or 5.41 per cent.
“The entire disinvestment drive is hasty and ill-conceived. Investors know that the government is desperate and hence, the stock prices are getting hammered,” said independent market analyst S P Tulsian.
Stocks of public sector undertakings (PSU) have remained weak due to the disinvestment drive. Shares of the BSE PSU index have declined 7.5 per cent against just a 0.5 per cent decline in the benchmark Sensex so far this year.
“Previously, disinvested stocks have also not performed as investors believe the government will sell even cheaper going ahead,” said Sabharwal.
In order to rein in the fiscal deficit for 2012-13, the government had set a disinvestment target of Rs 30,000 crore. In February, this target was reduced to Rs 24,000 crore, while the government has so far raised about Rs 22,500 crore.
Analysts said recent stake sales of RCF and Nalco was like selling ‘family silver’ at cheap prices.
“Nalco has a cash balance of Rs 19 per share. The stake sale was done at Rs 40 per share. This shows the desperation. The government shouldn’t have gone ahead with this disinvestment. Nalco is the largest producer of aluminum. At a right time the share sale would have definitely fetched good valuations,” Tulsian said.
“The entire disinvestment drive is creating negative sentiment among investors,” said Sandip Sabharwal, head of portfolio management services at Prabhudas Lilladher. “On a continuous basis, incremental disinvestment is happening at prices cheaper than before.”
Analysts believe the government can afford to start selling at higher prices as it is only just short of meeting this year’s revised disinvestment target of Rs 24,000 crore. In the past one month, the government has sold shares in Rashtriya Chemicals and Fertilisers (RCF) and National Aluminum Co Ltd (Nalco) at multi-year low prices. Also, shares of the two disinvestment candidates — MMTC Ltd and Steel Authority India Ltd — identified for this year, have traded weak.
Coal India, the world’s biggest coal miner, today became the latest company to get a beating on reports that the government will sell 10 per cent holdings as part of next year’s disinvestment programme. Shares of the company closed near its one-year low at Rs 302.70, down Rs 17.30, or 5.41 per cent.
“The entire disinvestment drive is hasty and ill-conceived. Investors know that the government is desperate and hence, the stock prices are getting hammered,” said independent market analyst S P Tulsian.
Stocks of public sector undertakings (PSU) have remained weak due to the disinvestment drive. Shares of the BSE PSU index have declined 7.5 per cent against just a 0.5 per cent decline in the benchmark Sensex so far this year.
“Previously, disinvested stocks have also not performed as investors believe the government will sell even cheaper going ahead,” said Sabharwal.
In order to rein in the fiscal deficit for 2012-13, the government had set a disinvestment target of Rs 30,000 crore. In February, this target was reduced to Rs 24,000 crore, while the government has so far raised about Rs 22,500 crore.
Analysts said recent stake sales of RCF and Nalco was like selling ‘family silver’ at cheap prices.
“Nalco has a cash balance of Rs 19 per share. The stake sale was done at Rs 40 per share. This shows the desperation. The government shouldn’t have gone ahead with this disinvestment. Nalco is the largest producer of aluminum. At a right time the share sale would have definitely fetched good valuations,” Tulsian said.
Both Tulsian and Sabharwal believe the government should explore other options for raising capital if the stock prices of PSU continue to remain depressed.
“The government should look at mobilising funds through sale of residual assets held by SUUTI (Specified Undertaking of UTI). This could fetch them over Rs 50,000 crore. Also, it can look at inducting strategic investors, which will be willing to pay a better price,” said Tulsian.
Sabharwal believes instead of stake sale, the government should announce a special dividend in cash-rich Coal India.
The target for the next year has been kept at a steep Rs 40,000 crore and the government is likely to raise this amount by selling shares in companies, including Indian Oil Corp, Coal India and Neyveli Lignite Corp.
