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Anup Menon

THE market may have been harsh on small investors, but the Government has little reason to complain — so handsomely has it been rewarded. It is richer by nearly Rs 45,000 crore on its holdings in 27 listed public sector undertakings (PSUs), all in a space of five months.

At current market prices of the shares of these enterprises, the Government holding is worth about Rs 1,00,000 crore. But at the start of the current calendar year, they were worth only Rs 55,000 crore.

Oil giant ONGC has fetched the largest increase in wealth, with the Government stake in the company now worth Rs 20,700 crore more than it did at the beginning of the year. From a price of Rs 136.45 in January, the share is currently worth Rs 309.05. In hot pursuit is another company in the petroleum sector, Indian Oil Corporation, where the Government stake gained an extra Rs 4, 206 crore during this period.

The environment for PSU stocks has been extremely favourable, with most of them recording substantially higher returns than the market as a whole. While the BSE Sensex has actually declined in value, the PSU stocks gained an average of 143 per cent. This gain is spread across a broad portfolio of stocks. If we arrange the stock in the descending value of appreciation, the median stock has generated a rise of 90 per cent.

Though the share price rise has been spectacular in some cases, they have not translated into larger wealth for the Government given the inherently small size of these companies. Thus, a company such as IBP has seen its rise by over Rs 300 in terms of absolute share price. But that added only another Rs 400 crore in wealth. An increase in share price of a similar order in the case of Engineers India Ltd translated into Rs 1,548 crore in incremental wealth.

The market has been bidding prices up on expectations of disinvestment at a significant premium to the current market prices. That should translate into some quick windfall gains for investors when the successful acquirer makes an open offer to minority shareholders. Recent history is clearly in favour of such an assumption.

For instance, the sale of a partial stake in IBP to IOC at Rs 1,551.25 per share landed a windfall for its investors. When the sell-off announcement was made, the acquisition price turned out to be around three times over the prevailing market price. An open offer at that price means an added profit for minority shareholders.

More recently the sale of the 26 per cent stake in IPCL to Reliance, which netted the highest-ever inflow from the sale of a single company, meant a premium of around 60 per cent to the prevailing market price. Investors can hope to exit from the company in favour of Reliance (through open offer) at a handsome profit.

Not surprisingly, Rashtriya Chemicals and Fertilizers has topped the charts, with a gain of over 450 per cent in the last five months. A disinvestment of stake is high on the Government's agenda. Bharat Earth Movers and Engineers India, which were placed second and third in terms of returns, are reckoned to be ripe candidates for disinvestment.

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