Vinit Bolinjkar, Head of Research, Ventura Securities, says while it cannot be said that divestment will not come through, it may be more out of choice rather than out of compulsion. So to that extent, the government has the flexibility to decide whether they would like to divest, and with the government not on anvil to sell the family silver at throwaway rates, the PSU valuations are going to be on a track of self-discovery.
Bolinjkar further says: “Oil and gas, PSU banks, and also some infrastructure companies should do really well going ahead.”
What according to you is the true value that PSUs have delivered to investors from 2014 onwards compared to what the private sector has delivered to investors?
Vinit Bolinjkar: The PSU basket was betrothed with a lot of low valuations highlighting the inefficiencies of the previous decade prior to the NDA. But with the NDA coming in, there was a lot of stress on fiscal discipline and growth and this has led to the sectors doing really well and coming up and letting value run
We believe that this efficiency gain is going to be a continuous process and they will also be part of the heavy lifting in terms of the capex, especially on the infrastructure side. Notably, the PSU banks’ valuations are extremely cheap while their return on equity is comparable to many of the large private banks.
In addition, a lot of efficiency gain is coming in the PSU basket because of the promotion of people from within the organisation who know the business and are able to lead it from the front. So with strong leadership, efficiency gains, and government-promoted growth factors, the PSU basket still has a lot of room to grow and if the Modi government were to come back, continuation of policy will mean that they continue to deliver value for shareholders.
So even with current valuations, you are seeing more upsides to PSU stocks. The BSE PSU index over the last five years, has shown a definite gain of more than 169%. But would you say that some of the gains in India’s PSUs have come at the cost of growth of the private sector?
Vinit Bolinjkar: No, I would not say it has come at the cost of the growth of the private sector, but we have to appreciate the fact that the private sector was slow in gearing up to capex. During that interim, it is the PSEs, or the government-promoted entities which have borne the brunt of the capex boom. Practically, it is more of an infrastructure-led growth, and companies within the infrastructure are largely promoted by the government, and hence we have seen a lot of growth coming from there.
In a historical context, government-owned companies have been trading at discounts to their private peers, and that gap has narrowed in the last couple of years. Going ahead, we are seeing sustained growth in PSUs. If the current dispensation stays on after the general elections, what happens to disinvestment plans? No disinvestment target has been set by the finance minister in the interim budget this time. What do you see happening on that front?
Vinit Bolinjkar: So, why do you disinvest? You disinvest when there is a fund paucity. With the government coffers looking up, fiscal deficit coming down, and with the government doing partial divestment, just look at the way IREDA has added value. They did a 3% disinvestment, and look at the tremendous value that has been created.
So while I do not say that divestment will not come through, I think it will be more out of choice, and rather than out of compulsion. So to that extent, the government has the flexibility to decide whether they would like to divest, and with the government not on anvil to sell the family silver at throwaway rates, the PSU valuations are going to be on a track of self-discovery. The earlier arbitrage was created by the investment bankers where they would sell the stock down and buy it back when the divestment was done. That is a thing of the past.
In this kind of scenario, which are the companies, and particularly the sectors where you see maximum value right now which could create added momentum going into the future
Vinit Bolinjkar: Oil and gas, PSU banks, and also some infrastructure companies should do really well going ahead.
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