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Own part of a PSU and partner with FM?

July 04, 2009 17:48 IST
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Revitalize the divestment programme and plan to generate at least Rs 25,000 crore (Rs 250 billion) per year. Complete the process of selling of 5-10 per cent equity in previously identified profit making non-Navratnas. List all unlisted public sector enterprises and sell a minimum of 10 per cent of equity to the public. Auction all loss making PSUs that cannot be revived. For those in which net worth is zero, allow negative bidding in the form of debt write-off.

Point number 4, Box 2.3; Page no 29, Economic Survey 2008-09

The Economic Survey 2008-09 tabled in Parliament on July 2, 2009 has very strongly advocated for the divestment and listing of public sector companies.

The same was earlier mentioned by the President Prathiba Patil while announcing the reforms policy of the new government during a combined sitting of the Rajya Sabha and the Lok Sabha.

The forthcoming budget on July 6, 2009 will, in all probability, announce the intention to draw a plan for listing of more government sector companies and also divesting its equity (stake) in existing listed companies up to a maximum of 49%.

What's in it for our personal finance?

What this effectively means is that we can expect Initial public offers from public sector companies like Life Insurance Corporation of India, Indian (Air India), Neyveli Lignite, Food Corporation of India, Cochin Shipyard, etc. and also become part owners of the same.

Would it not be a great feeling to fly Air India and tell the stewardess that you own part of the company?

From a political point of view the government has replaced the politically unsafe word 'divestment' with 'people ownership'.

A well branded combination of capitalism in the name of the aam aadmi. But, the economic survey 08-09 has clearly spelt out the direction that the economy needs to take in terms of divestment.

From a personal finance point of view, the number of fundamentally strong companies with a proven history and breed (the government's progenies!) to invest in will increase manifold.

It will be easier for small investors to take informed decisions as many of these companies are really strong performers in their businesses but are not able to grow for lack of funding or capital.

There are many companies which have a lot of hidden value and opportunities to do well if infused with fresh capital. And the risk of investing in them also would be considerably lesser, as they would have a majority stake with the government.

Power of diversification: Diverse sectors to choose from

A look at just the list of Navratnas and Miniratnas of the PSU companies reveals the sheer magnitude of diversity in terms of industry domain, business modules and future prospects.

Add to this all those PSUs, which are waiting for your money to move in the 'Ratna' league. A great way to create wealth and show your patriotism too!

Lessons from the NIFTY:

A look at the Nifty index and its constituents reveals a very interesting observation. Of the fifty companies which make up the Nifty, 10 companies are existing PSUs (BHEL, BPCL, GAIL, NTPC, ONGC, Power Grid Corporation, PNB, SBI, SAIL and NALCO) and 5 others (Axis Bank, HDFC, HDFC Bank, ICICI Bank and Maruti Suzuki) were erstwhile PSUs.

A whopping 30% of the index. This simple figure shows us the wealth creation capabilities of the PSUs as well as the prospects for small equity investors when the divestment process takes off on a faster scale.

The consumer point of view

From a consumer point of view too this would bring about an improvement in the service levels of these companies as there would be more pressure on these companies to perform better and get profits.

A visible effect is the change in attitudes of many PSU companies pre- and post-privatisation.

Housewives could find competitive prices for commodities and drastic improvements in service levels and infrastructure and development projects could see faster approvals.

The bottom-line

Investors with plans for investing in the stock markets might find it prudent to probably wait for some time to see how the new government goes about listing its companies.

All eyes and ears on Mr Finance Minister's Budgetary Speech on July 6, 2009!

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