The recent interest in PSU scrips can, of course, be attributed to the sell-off of IBP and VSNL, and the start of the divestment process for the Shipping Corporation of India (SCI). ''The determination of the government to go through with the divestment process will make it easy for it to sell the next set of PSUs,'' says Jamshed Desai, Head of Research, Taib Securities. And it will also force the market to revalue the scrips of PSUs as it is already doing. ''Things have been set in motion and it will take less time to unlock value from PSUs,'' says N. Prasad, the Chief Investment Officer of Sundaram Newton Mutual Fund.

The figures being bandied about as the possible divestment prices of HPCL, BPCL, and SCI are way above the current market prices of these scrips. And there's reason to believe that there's substance to what is clearly a speculative frenzy. ''The government has shown a decisive streak; this will keep interest alive in probable (divestment) candidates,'' says Desai.

Still, investors would do well to approach PSU stocks cautiously. Our recommendation: focus on the scrips of those PSUs where a clear roadmap for divestment has been announced. Some PSUs, like Container Corporation and Dredging Corporation, have been labelled 'strategic' and are unlikely to come up for divestment anytime soon.

Second, investors should factor in the floating stock factor. For instance, IOC is expected to make an open offer at Rs 1,551 a share for a 20 per cent stake in IBP. This, when the market price of the scrip is Rs 832 (February 7, 2002). So, should you buy at Rs 832 and sell at Rs 1,551? Unfortunately, things don't work that way. Everyone is likely to want to participate in the open offer and there is a 40 per cent float of the stock in the market. That means only 50 per cent of the shares will be accepted. And post the offer, the market price, thanks to the high float, is estimated to be between Rs 200 and 400. Bottomline: buy into HPCL, BPCL, IPCL, Neyveli Lignite Corporation, Hindustan Zinc, and SCI, but only after the government has publicised their divestment roadmap.