Govt should sell shares of PSUs

The government should take advantage of the current momentum in the stock market to sell shares in the already listed PSUs at a good premium. There are many PSUs such as the NTPC where the government has a large holding, and more equity can be divested without inviting any controversy.

The appetite for shares of PSUs with convincing growth potential is very strong, government ownership notwithstanding. That the 43-scrip BSEPSU index outperformed the sensex recently bears that out. Besides, the price returns on shares of newly listed power PSUs — Power Finance Corporation and Power Grid — have already served to whet demand for shares of other public enterprises.

For starters, the government should consider further divestment in PSUs such as MMTC, NMDC, Neyveli Lignite, National Aluminium, SAIL and Hindustan Copper. Most of these PSUs are 85%-99% owned by the government.

Besides yielding good returns for the government, follow-on offers from listed PSUs would also increase the floating stock of these companies and thereby improve liquidity and reduce volatility in price movement.

Much of the sharp rise in stock prices over the past two months could be a case of too much money chasing too few shares. At least, that can be said of MMTC and NMDC.

The MMTC share price rose by almost Rs 2,000 every day over the past one month. That this is due to lack of sufficient floating stock is borne out by the fact that only 0.67% shares (or 3.34 lakh shares) of MMTC and 1.62% (21.35 lakh shares) of NMDC are held by institutional and retail investors.

The sale of shares can help the government to raise resources for various social sector projects. Of course, there could be some cases where the company too needs to raise funds for its expansion, and there the government will have to ride piggyback on a public offer from the company. The strategy for each company can be considered individually.

However, the government as a promoter must move decisively to benefit from the good valuations and also share with the public the wealth created by PSUs