Disinvestment talks trigger buying in PSUs

'Several mutual funds have launched PSU Funds'.


Our Bureau

Mumbai, Jan. 15

Shares of Government-owned companies gained between 5 and 20 per cent on Friday on talks of stake sales in some of them.

The BSE PSU index gained 2 per cent. Sensex and Nifty closed in the red.

Engineers India Limited gained 20 per cent and hit the upper circuit after the Government announced a 10 per cent divestment in that company. The State owns a 90.40 per cent stake in Engineers India. The stock closed at Rs 2079.70 on the BSE.

The other such counters that gained on Friday were State Trading Corporation, Dredging Corporation of India Ltd, Hindustan Copper, NMDC, Rashtriya Chemicals and Fertilisers Ltd, MMTC, BEML. The Government's holding in these companies is more than 90 per cent.

The Cabinet approval for disinvestment in Engineers India has brought renewed buying interest in other PSU stocks such as NMDC, GMDC, FACT, RCF, ITI, HMT, HOCL, National Fertilizer Ltd etc, said Mr Alex Mathews Head, Research Centre – Geojit BNP Paribas Financial Services.

According to a Sharekhan report: "Disinvestment remains one of the trump cards for the Government in managing fiscal deficit. However, the ambiguity over the pace of disinvestment and the absence of any visible progress in disinvestment has led to uncertainty over willingness of the Government to play the disinvestment card. Having said that, the recent announcement (all profitable listed PSUs to have minimum 10 per cent public ownership) gives the much needed traction to the disinvestment programme."

Year 2010 can expect huge issuances from the Government . As India is moving from a $1 trillion economy to a $2 trillion one, it has appetite to absorb these massive investments mainly due to the 38 per cent savings rate, a report by Arm Research Private Ltd said.

PSU divestment has created value for investors in the long run. Taking this into consideration, several mutual funds have launched PSU Funds which would tend to benefit from the PSU divestments, the report said.