A sharp fall in state-owned companies at the bourses thus far in calendar year 2019 (CY19) has booted out public sector undertaking (PSU) from the top-10 market capitalisation (market-cap) club.
India’s largest bank by assets, State Bank of India (SBI) and the sole stock to hang on to this elite list was evicted last week, with its market-cap out falling below that of Bajaj Finance. Reliance Industries, Tata Consultancy Services (TCS), HDFC Bank, Hindustan Unilever, HDFC, Infosys, ITC, Kotak Mahindra Bank and ICICI Bank are now among the top 10 companies with the highest market-cap.
While the S&P BSE PSU index has lost around 9.5 per cent since the start of CY19, the S&P BSE Sensex has moved up around 4 per cent during this period.
“A number of these PSUs are in the mid-and small-cap segment, which has taken a beating in CY19. That apart, the stake sale proposal and the overall operational performance also had a bearing on the sentiment,” explains G Chokkalingam, founder and managing director at Equinomics Research.
In January 2008 when the S&P BSE PSU index was at an all-time high, five PSU stocks – SBI, Oil and Natural Gas Corporation (ONGC), NTPC, NMDC and MMTC were a part of the top 10 companies by market-cap. Currently, ONGC stand at 17th position, NTPC at 25th, NMDC at 85th rank, while MMTC has slipped to 419th position in overall market-cap ranking, shows data.
The S&P BSE PSU index ended at 6,544 on Friday and has tanked nearly 41 per cent from its all-time record closing high of 11,093 touched on January 4, 2008. In comparison, the S&P BSE Sensex zoomed 82 per cent from level of 20,686 to 37,673 during this period.
Divestment on cards
The government, on its part, is now looking to divest some of its stake in select PSUs.
Bharat Petroleum Corporation (BPCL), Shipping Corporation of India (SCI) and Container Corporation of India (Concor), according to reports, have been cleared for divestment.
Over the last two years, the government's disinvestment proceeds have ranged between Rs 800 billion to Rs 1 trillion/year. In FY20, the target is steep with more than Rs 1 trillion earmarked for disinvestment. Analysts say privatisation of PSUs can give a meaningful boost to the reforms agenda and can be a trigger for rerating for these stocks.
“The NSE PSE index is trading at near- historical lows (both on absolute as well as a relative basis). However, while earnings growth for corporate India has generally been weak, for state-owned enterprises (SOEs) it has been even weaker. With the sector trading at depressed valuations, we believe any news flow on privatisation can potentially drive rerating of the overall asset class,” says a recent UBS report co-authored by Gautam Chhaochharia, their head of India research along with Dipojjal Saha.
Chokkalingam, on the other hand, remains bullish on the PSU stocks, especially those companies that have a healthy cash in hand. “Given the fiscal constraints, the government may ask them to dole out hefty dividends this fiscal. Hence, they become a good dividend play for investors,” he says.