How else can one describe the logic behind the government sitting tight for almost 10 months on its stock-sale decision in several blue-chip public sector undertakings (PSU) at prices far below their real value. Even a novice in the business would know that price is a resultant function of demand and supply. When supply exceeds demand, price comes crushing down.

The question is: If the government decided way back in March 2012 to offload part of its stakes in about a dozen PSUs to raise Rs. 30,000 crore in support of its 2012-13 budget, why did it take this long to implement the task making nearly all those PSUs to enter the market in quick succession in less than eight weeks making them appear like distress sale of stocks in a surplus market? It is happening every time, almost every year. In the process, the government is playing in the hands of brokers and institutional investors. With so many PSU stocks offered for sale at the same time, the market is given a clear and easy opportunity to manipulate the prices of those stocks well in advance to keep them low before their offering. The latest bullish trend in the stock market had little impact on the prices of stocks of those PSUs, which are scheduled to be sold in February and March, this year. They remain depressed.

Last year, the government nearly burned its nose on the ONGC stock sale, also in March, with India's biggest-ever divestment transaction narrowly escaping disaster as Life Insurance Corporation (LIC) stepped in dramatically at the last minute and rescued the floundering Rs 12,400-crore auction of shares of ONGC, which was seen as a test case for more such deals. Foreign investors and sovereign funds shunned the issue as they were miffed by the government's move to sell shares at a premium over the prevailing market price. ONGC's auction took a dramatic turn minutes before it was scheduled to close. Investors had offered bids worth barely Rs400 crore of the Rs12,400 crore the government would have raised at the base price of Rs290 per share, prompting the government to press the panic button, and market sources said the country's largest insurer was summoned to fill the gap, although top bureaucrats in the department of disinvestments denied this. For LIC, which prevented the ONGC offer from getting bombed in the stock exchanges by making a bid for as much as 84 per cent of the issue against the overall final subscription of 98 per cent, it was a good investment decision, finally. ONGC shares are now quoted at around Rs. 326 each.

This year, the government’s biggest stock sale is in NTPC, India’s largest and one of the world’s top electricity generation companies. Going by key operational and financial performance parameters, NTPC ranks among the top performers in the country’s corporate sector. Last year, the company showed a turnover of over Rs. 65,893 crore and net profit of nearly Rs. 9,815 crore. In the power sector, NTPC’s are rated as ‘gold standard’ stocks. Yet, the company remained highly undervalued in the stock market. A year ago, the company’s stocks were quoted at around Rs. 190 against the face value of Rs. 10 each. Despite the current generally buoyed up market trend, NTPC’s share price defied the logic to stay depressed at around Rs. 155 as the company geared up to execute the 9.5 per cent government stake sale. The floor price fixed for the NTPC offer for sale (OFS) is even much lower at Rs. 145 per share. Obviously, the government did not want to take any chance considering the huge stake sale target of Rs. 12,000 crore. At the floor price of Rs. 145 per share, the company OFS makes it the most attractive stock purchase option investors can dream of in the present market. Barring unforeseen circumstances, the stock promises to gain at least 30 per cent by this time, next year.

Just ahead of NTPC, public sector Oil India’s (OIL) 10 per cent stock sale fetched over Rs. 3,100 crore for the government with foreign investors getting over 60 per cent of the issue. The minimum cut-off price for share allotment was Rs. 520 apiece against the floor price of Rs. 510. The full credit for this goes to Union Finance Minister Palaniappan Chidambaram, whose recent investors’ meet in Singapore helped restore foreign investors’ confidence in the Indian market. With the 10 per cent OIL stake sale, the government has so far mopped up at little over Rs. 10,000 crore against the year-end target of Rs. 30,000 crore. The government is highly optimistic about meeting 90 per cent of the current year’s revenue target from PSU disinvestments. Among the pending government stake sale this year are such large PSUs as SAIL, NALCO and MMTC.

There is nothing wrong if LIC as an investor plays a stellar role in the present market situation to corner large chunks of PSU shares at almost throw-away pieces to book huge profits later. A shrewd investor, LIC has been doing this for decades. Till the 1980s, LIC was the single largest shareholder in Tata Steel, holding around 48 per cent. The recent report that LIC was selling stakes in some of the blue chip private sector companies such as Larsen & Toubro and Mahindra & Mahindra to build corpus to bid for PSU shares makes sense. Some of the highly underpriced PSU shares such as NTPC and OIL are expected to appreciate at much faster rates those overpriced private sector shares commanding high profit-earning (P/E) ratio. NTPC’s P/E multiple is only 11 against the Sensex P/E average of nearly 18.

The government could have performed much better in mopping up funds from PSU disinvestment under more attractive terms if it would have proceeded more carefully, especially after last year’s ONGC stake sale fiasco which was practically boycotted by FIIs, and executed the disinvestment programme in a more phased manner. In 2011-12, the finance ministry planned to raise Rs 40,000 crore from disinvestment proceeds but was able to garner only about Rs 14,000 crore. In fact, the Department of Disinvestment seemed to become proactive only after Chidambaram took charge of the finance ministry. (IPA Service)