IPOs of core sector PSUs have performed poorly since 2007

Among the public sector plays that have hit the primary market in the past four years, banking and finance companies have clearly emerged trumps. Other PSUs have not done so well

Initial public offerings (IPOs) by public sector undertakings (PSUs) are coming thick and fast. Just a few weeks ago, Coal India raised Rs15,000 crores. Now Manganese Ore is raising Rs1,250 crores. There is a lot of interest and excitement about these issues. But have they delivered great returns? Yes, but only those that are in the banking and finance business. Investors who have bet on the IPOs of manufacturing and service businesses of PSUS have not had great success.

Since 2007, nine PSUs have made their debut on the national bourses. Most prominent among these are companies in core industries of the economy-Oil India, National Hydro-electric Power Corporation (NHPC), Coal India, Power Grid Corporation. However, apart from Oil India, the others have performed poorly since listing day.

The worst performer in this category is NHPC, which has tanked 24% since its debut in September 2009. It listed at Rs39 and is now languishing at Rs28. Satluj Jal Vidyut Nigam (SJVN), another hydro-power company, is trading 19% lower than the price it listed at (Rs28) in May this year. The stock prices of Power Grid Corporation and Coal India have not been able to maintain their momentum, trading only 4% and 9% higher from their listing prices. Only Oil India has put up a solid show, having delivered annualised gains of 29% since debut.

Meanwhile, the stocks of PSUs that have done very well are finance and banking companies, a segment that has clearly dominated the markets over the past few years. Power Finance Corporation, the state-run power sector financing company, has enjoyed a fabulous run since its opening on 23 February 2007. The stock, which was listed at Rs104, is now trading at Rs313-a solid annualised gain of 34% over the period.

Rural Electrification Corporation is another financing company that has proved beneficial for shareholders. This Navratna company, whose objective is to finance and promote rural electrification projects, has witnessed a spike of 41% since its debut on 12 March 2008. After listing on the bourses at Rs125, the stock now trades at Rs316 in the open market.

Banking stocks have been at the forefront of the stock market rallies of late. Not surprisingly, stocks of public sector banks (PSBs) that took the IPO route in the past three years have turned in stellar performances on the bourses. United Bank of India, which got listed at Rs77 in March this year, has since yielded gains of 55%. Similarly, Indian Bank and Central Bank of India (both hit the primary market in 2007) have witnessed annualised gains of 28% and 12% respectively, over the listing price.

One reason for this great stock performance is that Indian banking and finance companies were in a sweet spot for the last few years. Low interest rates and a steady demand for loans ensured that banks have enjoyed volumes as well as interest spreads. As long as this happy situation continues, PSU banking and finance companies will make money. However, investors chasing the IPO rainbow with PSUs will have to think twice before they extrapolate the performance of a PSU finance company to a PSU core sector manufacturing company.




7 years ago

Agreed,good article.

Make public NSE inquiry report in brokerage firm operations: CIC

New Delhi: The inquiry reports of National Stock Exchange (NSE) in the alleged defaults by a brokerage firm should be made public, the Central Information Commission (CIC) has told the Securities and Exchange Board of India (SEBI), reports PTI.

The transparency panel rejected the arguments put forth by SEBI that making these records public would impede investigations and that the information is third party hence exempted from disclosure under the RTI Act.

The case relates to information sought by one Swati Mayekar on the inspection of the clearing operations of SMC Global Securities Ltd (F&O segment) conducted by NSE in December 2008.

SEBI in its RTI reply, has said, "The observations made during the inspection of SMC and its reply, were placed before the Disciplinary Action Committee (DAC) of the exchange.

DAC decided that a broad-based audit be conducted by independent external auditor of SMC."

But the market regulator refused to give any details about the NSE inspection report and also audit by external agencies saying it was about a third party's business transaction and disclosure would impede the ongoing investigations.

Ms Mayekar, however, said the disclosure was in the larger public interest hence information should be made public.

"If the averment of the respondents (SEBI) that all such enquiry reports should be withheld from disclosure as these might contain commercial and business related information of the broker or brokerage firm investigated by the stock exchange or SEBI, is accepted, no wrongdoing of the brokers would ever be known to the investors-the very victims of the broker's wrongdoings," Chief Information Commissioner A N Tiwari said.

Mr Tiwari said withholding of such information will also prevent the vast number of investors from knowing or may be appreciating how SEBI, as capital market regulator, safeguards their interest in given situations against brokers.

"It is unclear from the statements made before me as to how disclosure of the information as requested by the appellant would impede the process of the enquiry. The reference of the respondents to Section 8(1)(h) to withhold the disclosure of information was, therefore, untenable.

"Their claiming that they held the enquiry report submitted to them by the stock exchange in fiduciary relationship is equally unconvincing and is rejected," he said in the order.


CBI files fresh status report on 2G spectrum probe

New Delhi: The Central Bureau of Investigation (CBI) today filed a fresh status report in the Supreme Court on its ongoing investigation into the second generation (2G) spectrum scam allegedly involving former telecom minister A Raja, responding to posers by the judges and explaining in detail the nature of the probe, reports PTI.

Sources said that the report filed in sealed cover before a bench comprising justices GS Singhvi and AK Ganguly gives details about the probe since the registration of an FIR against unknown persons on 21st October, last year. The agency has given "replies to the concerns of the court raised till the last hearing on Thursday," they said.

"There are also replies to the concerns expressed by the judges on Thursday. So many comments were made by the judges and the status report will seek to clear the air," they said.

The apex court on 25th November (Thursday) wanted to know from the CBI why it had not questioned Mr Raja and his private secretary and had said the agency was "beating around the bush" when "illegality is prima facie evident."

The sources said that the status report given to two judges in separate sealed covers explains the nature of investigation done on the basis of massive amount of documents and several hours of tapes containing national and international trails.

"The investigation has dimensions, both in India and abroad," they said, adding that the details have been submitted in sealed covers because any reliance on the contents in open court will gravely prejudice the investigation.

"The names of the individuals and companies associated with the scam have been investigated," they said.

The report has made it clear that the Comptroller and Auditor General (CAG) report projecting that the 2G spectrum allocation scam has caused a loss of Rs1.76 lakh crore to the state exchequer was based on the documents submitted by the CBI in 2009.

"Since then there has been much additional material which the CBI is only privy to," the sources said.

The first report filed by the CBI to the court was returned to the agency by the bench which had asked it file a comprehensive report.

The hearing in the case will resume on Tuesday.


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