PSUs always offer value since the markets discount the fact that Government ownership makes it hard to be nimble at decision making, especially with all the bureaucratic processes. However, a couple of PSU companies maintain a monopoly or duopoly in their industry with high entry barriers. Coal India, Power Grid and Oil Marketing Companies to name a few.
Benefits come from Government ownership too. A sovereign guarantee makes it easier to raise money from the markets for capital expenditures. There is no promoter risk involved. There are industries like banking and insurance where sovereign ownership gives comfort and trust, especially when private banks get into trouble. Being a part of a developing economy with a fiscal deficit, Government ownership forces them to declare high dividends, some of which offer a better dividend yield than risk-free, fixed-income assets.
Another bet coming from the fact that we are a developing economy is that the Government must invariably reduce the stake to spend money in other areas. When disinvestment happens, it will unlock value as the private players trade at a premium compared to PSUs. Even in PSUs where the Government seeks majority ownership, they must make it nimble to realize better valuations at the time of stake sale. As we saw in LIC IPO, a lot of effort goes into making it suitable for public scrutiny.
Another area of Government focus is to unlock the value of land banks and other fixed assets that legacy PSUs owned from the early days of independence. There is land at prime spots in multiple cities that aren’t being fully utilised. Government plans to use REITs and PPPs to unlock value and reduce its direct involvement in the capital expenditures of the PSUs. This would help them realize better use of resources or raise capital from underused assets.
You could end up earning yourself a good dividend and also realizing a decent amount of capital gains as the government unlocks value in PSUs.
