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Mumbai: While broader market sentiment has turned after the corporate tax cut, beaten-down PSU stocks are still crying for attention amid concerns that the government may go for higher disinvestment this year to bridge its widening fiscal deficit.
These stocks have not performed well this year, and are likely to be on the government radar for share sale or strategic disinvestment.
Analysts say these stocks may see further downside from here on, if the stock prices are set lower in share sales to ensure that the offers sail through.
Also, a higher supply of paper in the PSU space could dilute the attractiveness of the overall pack.
In last one year, 43 of the 53 constituents of the BSE PSU index have logged negative returns.
Topping the list of losers are Steel Authority of India, Central Bank of India and NBCC (India), which have eroded 56.13 per cent, 55.37 per cent and 41.93 per cent of share values, respectively.
IFCI and Chennai Petroleum Corporation have shed 41.75 per cent and 41.
29 per cent, respectively.
Twenty-one other stocks have eroded in excess of 20 per cent in last one year.
In the same period, BSE Sensex has risen 6.70 per cent, while BSE PSU index fell 7.23 per cent.
Media reports suggest the government plans to raise an additional Rs 52,000 crore from disinvestment of 24 public PSUs, besides disinvesting Rs 1 lakh crore worth of shares as budgeted for the financial year.
This can help partly bridge the fiscal gap arising out of the Rs 1.45 lakh crore tax stimulus doled out to the corporates.
Rajat Sharma, CEO of Sana Securities, said a lot of PSU stocks are looking attractive right now, but that’s purely because of the dividend due from them.
He said a lot of these stocks are available at prices where dividend yields are very attractive.
The government has already asked oil companies to pay Rs 34,000 crore in dividend, profit and petroleum royalty this financial year, which would about 15 per cent more than what they paid last year.
In 2018-19, the comparative figure was about Rs 29,000 crore, almost half of which came from dividends.
ONGC, IndianOil and OIL undertook a combined Rs 9,500 crore share buyback programmes last year, allowing the government to offload shares in these companies.
However, to make up for the loss that the government is going to make because of the corporate tax cut, they will have to disinvest a lot and one can never know which companies are lined up for share sale.
“Do not expect any of the PSU stock to rally any time soon, because the government will be selling this and you never know the price at which they sell,” Sharma told ETNOW.
“The government will be a little desperate to sell stocks because, it has to make up for whatever losses it has made by cutting corporate tax,” said Sharma.
Over last five years, while BSE Sensex has risen 46 per cent, while BSE PSU index has eroded value by 13.64 per cent.
“The PSU stocks, where there is a possibility of strategic divestment or privatization, are set to see a massive rerating.
This is already playing out in the case of BPCL, CCI and Shipping Corporation and Hindustan Zinc,” said Ajay Bodke, CEO for PMS of Prabhudas Lilladher.
The respective sectoral peers may also gain thanks to the rub-off effect, he said.
“Barring these, stocks weighed down due to efficiency issues, may also not see much of an upside.
One needs to be wary as disinvestment prices could be set lower as seen before for successful fund raising,” Bodke warned.
“Also, a higher supply of paper in the PSU space may weigh on broader market sentiment,” he added.
Stock Market
In a hot market, beaten-down PSU stocks get cold shoulder. Here’s why
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