With Finance Minister Nirmala Sitharaman taking a strong stand in favour of privatisation and continuing disinvestment despite protests from labour/trade unions, listed Public Sector Units (PSUs) can be expected to witness a step-up in performance and valuation. A sneak-peek of the expectations is evident when you look at the rip-roaring 4.5 percent rise in BSE PSU index performance on Monday, its best performance in last ten Budget days.

Apart from LIC IPO, transactions involving BPCL (shares up 2.5 per cent), Air India, Shipping Corporation (up 3.5 per cent), Container Corporation of India (up 4.5 per cent), IDBI Bank (up 11.4 per cent), BEML (up 0.5 per cent), Pawan Hans, Neelachal Ispat Nigam limited among others would be completed in 2021-22 --- this gives much-needed clarity on the disinvestment blueprint for this year. It removes the concerns of small stake sales (to meet fiscal deficits) that looms large over all PSU stocks, which also de-rates valuations due to concerns of regular equity supply. Other than IDBI Bank, the government proposes to take up the privatisation of two Public Sector Banks and one General Insurance company in 2021-22. So, far we had seen limited action in terms of merger of small State-run banks with bigger ones, and the firm resolve shown by the Finance Minister is a clear indication to PSUs to either perform or be ready for private ownership. This an investor-friendly move.

Monetising surplus lands

The government’s decision to monetise surplus lands of State-owned companies through sale or concessionaire model is expected to make prime commercial properties available for development. This is expected to aid birth of more business districts and unlock value hidden in land. Capitaline data shows that 46 PSUs held land worth nearly ₹47,000 crore (cost value) as on March 2020, with Coal India, NTPC, Indian Oil Corp, Shipping Corp, Power Grid Corp, ITI and BPCL being the biggest in terms of land value. Expect the market value of the land to be much higher. However, implementation may not be a breeze given that documents of some land titles may not be available for verification, or some land could be under dispute.

Growth of CPSEs

Disclosing the broad nature of the policy of strategic disinvestment of CPSEs, PSU banks and PSU insurers, the Finance Minister has informed that post disinvestment, economic growth of Central Public Sector Enterprises (CPSEs)/ financial institutions will be through infusion of private capital, technology and best management practices. However given legacy problems, execution holds the key.

If executed well, this should help boost performance as the companies perform in a more market-like manner. Also, the clarity given on strategic sectors and non-strategic sectors provides a roadmap for privatisation, mergers etc.

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