PSU disinvestment can be your investment

Disinvestment through a public share sale is in the offing for about six public sector firms, with the first companies to hit the market slated to include Hindustan Copper Ltd and National Aluminum Company (Nalco). The government is looking at offloading 9.59 per cent of its equity stake in the copper major and 12.15 per cent in Nalco.

PSU stocks, especially of large government-owned firms are usually considered a safe bet that not only yield good returns but also have marginal risks. But should you put your money in 'sarkari' firms at a time when the government is eyeing high valuations for its stake to help plug its unsustainable fiscal deficit?

Disinvestment in two firms has already been put off because merchant bankers advising the deals were not confident of selling the shares at the high price being sought by the government. The 10 per cent initial public offer by Rashtriya Ispat Nigam Ltd had to be put off, while the government has been unable to find merchant bankers for the 9.33 per cent stake sale in MMTC Ltd and has extended the deadline for applications for a third time now.

Though price discovery is yet to take place in RINL as the steel maker is unlisted, the government wanted to fix the price band for the IPO at the book value of 22.50 per share as against the advice of fixing it at R 15 to R 17 by the bankers. Meanwhile, MMTC, with a public float of just 0.67 per cent, is ambiguously priced and has a price to earning ratio of 721. While it may take the government some time to reconcile differences with merchant bankers and put these two firms' share sales back on track, other firms may not necessarily face a valuation problem.

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