IOC's Chairman N.H. Ramachandran: Caught in the disinvestment crossfire

In the cold, dark winter of the Indian stockmarket's bear phase, any glimmer of hope, however small or dull, was welcome news. For most of 2002 and a good part of 2003, the government's drive to disinvest its holding, or part of it, in public sector companies, was the source of such news.

Then, the bears went into hibernation, the bulls, spurred by a good monsoon, and an even better showing by corporates entered the scene. The stockmarket went into overdrive. And even a Supreme Court judgement on Septembet 16 that halted the government's disinvestment drive dead in its tracks was brushed away.

As this article goes to press, Bombay Stock Exchange's Sensex is nudging 5000, BSEPSU, the exchange's PSU index, is at 3125.35 and all is well with the world. "The time-frame of the bull run has taken us by surprise, although the appreciation hasn't," says Navin Agarwal, the head of research at brokerage Motilal Oswal, referring to the fact that most stocks were undervalued (and how) before the current run. The man is also relieved that the stockmarket is no longer hostage to news on the disinvestment front.

The stock of the oil major in which the government seems most likely to sell its stake, IOC (an easy option because this company, which the government once had no intention of privatising, wasn't created by an act of Parliament), has lost around 7 per cent since September 17. The BPCL scrip has gained 7.6 per cent in the same period.

"The appreciation (in stock prices in general) is based on economic fundamentals," says Shailendra Bhandari, CEO & Managing Director, Prudential ICICI Management Company. "And it is driven by foreign institutional investors." Between April 1 and October 14, 2003 FIIs invested $4.46 billion (Rs 20,516 crore) in the Indian stockmarket.

But what explains the continuing boom in PSU stocks. S Srinivasan, Co-head, Investment Banking Operations, Kotak Investment Banking believes it could be a combination of undervaluation and performance. Reliance, he points out, trades at a price-earnings multiple of 15.6. HPCL, trades at 7.5, and BPCL, 9.9.

The other reason for the continuing boom in PSU stocks is the performance of banks. Most have reduced workforce, streamlined operations, and, as U.R. Bhat, Head of Securities and Director, JP Morgan India, says, "make huge profits from their treasury operations". That could explain why the market capitalisation of 51 PSU stocks, aggregated Rs 3,25,636.40 crore on October 17, as compared to Rs 1,62,708 crore on March 31, 2002. Moral: Only when the going is bad does the market needs triggers.