There is tremendous enthusiasm in the stock market ahead of the budget. Shares of government companies are on a roll and are continuously racing faster than the speed of a rocket. This year there has been a huge rally in the shares of these companies. The result was that after the election results, the market capitalisation of these companies increased by Rs 12 lakh crore. Whereas in just 16 days from July 1 to the budget, the shares of Rail Vikas, Indian Renewable, Shipping Corporation, Mazagon Dock, Oil India, RailTel Corp and Cochin Shipyard have increased by 25-50%.
Amid the current stock market boom, investors are getting attractive returns. But will this party of government companies continue or will the rocket speed stop? Let us know what are the views of investors…
Market capitalization increased a lot
After the election results, the market has breathed new life into state-owned companies stocks, especially PSU stocks. There has been a huge surge in these stocks in the last month or so. This has increased the market capitalisation of PSUs by about ₹12 lakh crore. So far this year, the market value of PSU stocks has increased by about Rs 22.5 lakh crore.
Will the momentum continue or stall?
The current market surge has also led to speculation that the government may think of raising money by selling its stake in these companies. Fund managers say that if this happens, the stock’s rally may be affected. The Economic Times report quoted MojoPMS’ chief investment officer as saying that there is a strong possibility that the government may want to raise funds by reducing its stake in some PSUs, which may put pressure on their prices.
Following the election results, PSU stocks continued to rise. These companies were expected to benefit from the continuation of government policies. Since July 1, shares of Rail Vikas, Indian Renewable, Shipping Corporation, Mazagon Dock, Oil India, RailTel Corp and Cochin Shipyard have risen by 25-50%. As of data till March 31, the government held over 75% stake in around 10 listed companies, including LIC, IRFC and UCO Bank.
The effect of the government’s decision can be seen
The government also has a major stake in Indian Overseas Bank, Mazagon Dock, Fertilizers and Chemicals Travancore (FACT) and General Insurance Corp. As per the minimum public shareholding rule, promoters should not hold more than 75% of the shares in a company. As per ETIG estimates, if the government sells shares to meet this limit, it can earn at least ₹2.9 lakh crore. Market regulator SEBI has given LIC time till May 2027 to acquire the first 10% public stake. Public shareholding in five of the 12 public sector banks remains below 25%. The current deadline for these banks to meet the minimum public shareholding is August 2024.
Market expert opinion.
However, the government is in no hurry to meet the targets for asset sales. In last year’s budget, the disinvestment target was set at Rs 51,000 crore, which was later reduced to Rs 30,000 crore. According to analysts and fund managers, the valuations of many of these stocks are expensive after the recent surge. Therefore, in such a situation, some correction may be seen in the future and the share value may fall.
Apart from this, PSU stocks like Bharat Heavy Electricals, FACT, Hindustan Copper, Mishra Dhatu Nigam and RailTel Corp are trading at a price-earnings (PE) ratio of over 100. Nifty is trading at a PE ratio of around 22 times. According to market experts, the scope for further price increases, given these lofty valuations, is limited. However, many PSU engineering stocks and PSU bank stocks have been ahead of fundamentals, so investors need to be very selective in this regard.
