Temper expectations from privatisation trade, say analysts

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Illustration: Ajay Mohanty

Shares of several public sector undertakings (PSUs) have rallied following national carrier Air India’s sale to the Tata Group.

The Street is hopeful that the Centre will privatise more state-owned firms, which will unlock value for all shareholders. However, domestic brokerage Kotak Institutional Equities (KIE) says it is best to temper hopes. It says the Centre’s policy to retain at least one or two in “strategic” sectors and the long list of “strategic” sectors will prevent most large from

“The government’s current policy, which entails a bare minimum presence in certain strategic sectors, may result in the government retaining control over most of the larger in the foreseeable future,” KIE said in a note adding that the government may be left with smaller PSUs and a handful of larger PSUs to privatise.

The government’s list of strategic sectors includes atomic energy; defence and space; banking, insurance and financial services; coal, petroleum, power and other minerals; and telecommunications and transport.

The brokerage says listed PSUs face several challenges and continued government ownership may weigh on their performance.

According to an analysis done by KIE, the total value of government holding in listed PSUs is about Rs 15 trillion. The value of government holding in top 15 non-financial PSUs is Rs 7.4 trillion. Meanwhile, the value of holdings in top 15 non-strategic PSUs is only Rs 1.7 trillion.

Temper expectations from privatisation trade, say analysts