Investors vote out govt stocks, lap up pvt sector ones

Via ET


Investors seem to be moving away from sarkari stocks, as most of these companies have been under-performing their private sector peers on the bourses.

Shares of companies in highly regulated sectors such as banking, oil & gas, cement, fertilisers and to some extent sugar (not PSUs, but where government intervention is high) have failed their investors in recent times to the extent that there is a clear demarcation between PSU and private sector stocks among investors.

"Sectors with lesser government intervention do well. There is an increasing and clear demarcation between PSU stocks and shares of private sector companies. The general perception among investor is that growth will not be that great in PSUs," said Unitis Tower Wealth Advisors CEO Nipun Mehta.

Across the world, stocks of government companies face "prejudicial absolutions" from investors. Investors in Israel are apprehensive of investing in companies like National Electric Company, Bank Leumi and National Telephone Company for fear of government over-intervention, powerful labour unions and bossy bureaucrats.

In order to attract investor interest into divested companies, the UK government resorted to underpricing of privatisation issues. This situation is no different in the over-staffed Indian public sector or government-regulated companies, where bureaucratic interference is curtailing its efficiencies vis-a-vis its private sector peers.

"The prime motive of private sector companies is enhancement of shareholder value. Government-held companies have to meet several social objectives. Many a time, social objectives of these companies conflict with the profit motive of the company. Though meeting social responsibilities can better corporate performance, it can, at times, be purely political," said Edelweiss Capital research head Shriram Iyer.

Being the third year of the UPA government, investors are not expecting any major reforms or changes in policy in terms of managing PSUs. Marketwatchers feel key PSUs and companies in regulated sectors like oil & gas, fertilisers, sugar and cement would be impacted by "politically-driven" decisions, as the nation moves towards general election in the first half of 2009.

"Most PSUs are in the epicentre of inefficiency, thanks to the backseat driving by the Left parties. Although there is great potential for growth, PSUs would never come anywhere near private companies with regards to performance," said an institutional head of a leading broking house.

However, some feel PSU stocks are ideal to invest in volatile markets as they have low beta levels. Moreover, if investors prefer safer investments to quickfire returns, PSU stocks are able to generate decent returns over a longer term.

It is felt that these companies have the potential for steady growth, despite these issues. Government-held companies have the scale to bid for international projects and are preferred more over private participants in several huge infrastructure projects.


The tight clasp of the ruling over companies in China seems to be working well in that country. Some of its mega IPOs in recent times have received huge response from foreign investors. The government holds about two thirds of the total market capitalisation in China.