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No Achche Din for PSU Shareholders
Most public sector units, which had run up sharply before the new government came to power, are now trading lower over the past one year
 
A year ago, when the Narendra Modi government came into power, the stock market was euphoric. Along with better governance, investors were hoping that the performance of public sector undertakings (PSUs) would be improved by a wave of restructuring including empowering the management, cutting down waste and possibly closing down lossmaking companies. Unfortunately, reforming PSUs is nowhere in the agenda of the Prime Minister (PM). Lack of reforms have disappointed investors and as on 15 May 2015, as many as 35 PSUs (of the 76) are trading below their trading price a year ago, as on 16 May 2014. 
 
Before the government came in to power, the positive sentiments were so strong that out of the 76 PSUs on our list, as many as 69 were trading higher on 16 May 2014 as compared to 1 January 2014 – as were many other large companies. Out of the 76, 47 PSUs hit their 52-week high on 16 May 2015. Most of the others peaked in the following 30 days. It was a few months later when investors realised the government’s priorities were different and they started looking elsewhere for opportunities. As many as 49 stocks are trading below their peak, which was hit nearly a year back.
 
While the government is entitled to decide how to prioritize its actions, the stock market was in no mood to wait for it to act on PSUs. The shares of PSUs started drifting down. Indeed, not only has there been no talk of reforming the PSUs but Public Sector Banks (PSBs) have continued to report bigger bad loans or non-performing assets (NPAs) and several of them are still headless. PSBs are under no pressure from the Ministry of Finance and Reserve Bank of India (RBI) to act against defaulting promoters. This was probably because the government depended on them for a successful rollout of opening 75 million new accounts under Jan Dhan Yojana and other subsequent savings and insurance schemes.
 
The first blow to market expectations was a tax-and-spend Budget in July, which included an ambitious programme to disinvest shares of select PSUs. Then soon after, the government unveiled a different set of priorities, launching Clean India and Make in India campaigns. Investors soon suspected that PSUs would be used as instruments of social change, not to create wealth. Hence, over the past six months most PSU stocks have fallen. 
 
Among the 30 mega-cap PSUs, just 16 are trading in the black compared to their price a year ago. Bharat Electronics (123%), Gujarat Gas (118%), Central Bank of India (77%), Container Corporation of India (66%) and Hindustan Petroleum Corporation (45%) were the top five gainers.  At the bottom of the list of mega-cap PSUs were Oil India (-16%), NMDC (-18.44%), ONGC (-19%), Punjab National Bank (-21%) and Bank of India (-27%).
 
Looking at the sector wise performance, banks were among the worst performing over the past year. Banks were hit due to their poor governance, rising bad loans and lack of monitoring by the finance ministry. Government-owned banks command a market share of around 70%. Most of these banks are reporting a low credit growth and slippages in their non-performing assets (NPA) levels.
 
The 25 public sector banks (PSBs) on our list declined by an average of 7.48% over the past year. In comparison, the Bank Nifty index is up 18.69% over this period. Just seven of the 25 PSBs are trading higher compared to a year ago. As many as eight banks declined more than 20% over the year as on 13 May 2015.
 
Among the banks, which gained the most over the year were Central Bank of India (76.73%), State Bank of Bikaner & Jaipur (45.08%), State Bank of India (13.48%), State Bank of Mysore (12.65%) and State Bank of Travancore (10.93%). The worst performers were United Bank of India (-32.76%), Oriental Bank of Commerce (-35.53%), Indian Overseas Bank (-38.46%), Uco Bank (-39.63%) and Jammu & Kashmir Bank (-43.06%).

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COMMENTS

Gopalakrishnan T V

2 years ago

Minimum Government and Maximum Governanace turned out to be a mere slogan to attract Middle class votes. Efficiency through professionalism in the management of PSUs was on the agenda before the election but after the election PSUs were allowed to drift and the public Confidence reposed on the basis of election propaganda has been fast eroding based on the insensitiveness with which the PSUs in general and PSBs in particular handled by the new government. PSBs are biggest non performers and non performing PSUs contribute the maximum for such a poor state of affairs. The difference between UPA and NDA in the management of the economy is neither felt nor changed is the ground reality. The gap between talk and action is widening day by day and the people now realise that they have been taken for a ride as usual by the politicians. People live on eternal hopes and optimism.

Ralph Rau

2 years ago

Financials and Energy stocks are the core of any investment portfolio.

PSUs whether in Banking or Energy or are primarily intended to serve the public interest.

Social welfare is not the primary interest of private investors.

Business needs to be run by risk taking entrepreneurs and their reward structure must be designed to attract the right talent

Indian PSUs are generally headed by bureaucrats and not technocrats.

Dutt Sharma

2 years ago

That actually displays the concern of this Government, towards major Public Investments and performance expected from Government Investments. They are busy making laws to suit crony capitalism, calling themselves "soojh Bhooj ki Sarkar" meaning acceptance of the fact, that knowingly they are PROMOTING LARGE PRIVATE SECTOR for obvious gains. Also LOW PSU values can help VESTED INTERESTS buy large volumes at LOW prices..!

tikku

2 years ago

Shareholders---again money--money. Achchhe din will be only when our nations poor are looked after. Modi has allowed only to raise costs which only helps rich and makes poor suffer.

Anil Agashe

2 years ago

The euphoria was misplaced. Change of government is not the remedy for PSUs. We need solid reforms. Actually unless gives up management control not much is likely to happen. We need not feel sorry for those who thought things are going to change overnight and lost money!

Taking Care of Your Radiator
Removing a radiator to clean it can become a major exercise
 
Every summer, water-cooled-engine-powered motor- vehicle-owners in India would get their radiators flushed. This meant every car, truck and bus, with the possible exception of the VW Beetle and some other air-cooled engines. The drill was simple—open the drain cock at the bottom of the radiator; let the rust-coloured (or worse, mud-coloured) water and slurry out. Then put a hose-pipe with running water on top; let the engine tick over gently and keep pouring water till what comes out looks like what went in.
 
In a day and age prior to green and other coloured chemical coolants, this worked very well; it got rid of all the scaling, rust as well as muck which impacted cooling efficiency. To a keen eye, it also gave an indication of engine health; but more on that some other day.
 
For the purists, a ‘reverse flush’ was also essential and consisted of unbolting the radiator from the body; holding it upside down; and pouring water bottom to top while thumping it gently to dislodge anything that got stuck inside. It never failed to surprise me how much more garbage would pour out even after the ‘straight flush’ had visibly cleaned things up.
 
Unfortunately, in modern cars, radiators often cannot be flushed; certainly it is almost impossible to reverse flush them. Removing a radiator to clean it up if it gets choked after a few years can become a major exercise as authorised dealers will try to charge you also for full engine removal since it is very likely that the sludge and scaling has moved on to other parts of the cooling system.
However, where there is a will, there is a way; and every town has its radiator specialists who will find some home-grown method to bring the cooling functions back to original tick. It’s that, or alternately, spend a huge sum of money getting it done by the authorised lot.
 

Lobby against Public Transport

It is not just the expected bad results from the agricultural sector that may drive down new motor-vehicles sales this year but also the huge number of over-aged second-hand motor-vehicles of all sorts heading for non-urban India. In addition to the large number of people now opting for new forms of public transport in many cities, Delhi, the largest market, is one example.
 
This is why the lobbies, fighting for better public transport, appear to be back in full form. The long delay in the opening of the vital Mandi House to ITO stretch of the Delhi Metro, for example, is one outcome. This important arterial connection will reduce road traffic load of vehicles as well as pedestrians on one of the most congested street junctions in Delhi. It has been ready for almost six months now; but its operation is being held back on a technicality between two ministries—that single-line operation is unsafe. This is not true, because single-line operation under controlled conditions has been allowed in the past too.
 
It is said that the automobile lobby, already reeling under reduced sales of new motor-vehicles, has been behind this also. Not difficult to believe.
 
(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved in helping small and midsize family-run businesses re-invent themselves.)

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