Major public sector companies, once treasured for rich natural assets holdings, monopolies in certain businesses and a dominant presence in others, have gone out of favour with domestic mutual funds. Over the past 12 months, mutual funds have significantly pared their holdings in bluechip state-owned undertakings amid concern that the government is increasingly intervening in their business.
According to information collated by The Indian Express, domestic mutual funds and UTI have reduced their holding in five out of the six PSUs that are part of the Sensex, the benchmark index of the Bombay Stock Exchange.
Mutual fund holding has dropped significantly in power equipment major BHEL (from 7.03 per cent in March 2011 to 1.44 in March 2012), while in four other PSUs — GAIL, ONGC, NTPC and Coal India Ltd — MFs have pared their exposure, though not so dramatically.
The only exception has been State Bank of India, the country's largest bank, in which mutual funds and UTI improved their holdings marginally. Compared to 4.22 per cent last March, MF holding in SBI is 4.81 per cent now.
While PSUs have gone out of favour, 14 of the remaining 24 companies on the Sensex have seen the stake of mutual funds in them rise. In nine others, mutual funds cut their share.
The waning interest has not only eroded the valuation of PSUs, but also pulled down the broad market movement. In the 12 months ending March 31, 2012, the 30-share Sensex lost 10.5 per cent. But the 60-stock PSU index fell much more — 18.4 per cent.
More significantly, the 60 PSUs lost more in market capitalisation in absolute terms than the Sensex itself. While the Sensex market cap dropped 9.1 per cent or Rs 2.94 lakh crore to Rs 29.28 lakh crore during the last financial year, the market cap of the 60 PSUs plunged 18 per cent or Rs 3.5 lakh crore to Rs 16.09 lakh crore.
Experts tracking the industry said domestic funds have less confidence in PSUs because better opportunities are available. "Actions speak louder than words. Fund managers today see better opportunities elsewhere and their confidence in PSU performance is low," said a top executive with a leading mutual fund. "Government intervention is affecting PSU performance and the market has valid concerns."
In the recent past, The Children's Investment Fund Management (TCI), which owns 1.01 per cent in Coal India Ltd, wrote letters to the company to stop following government instructions and act independently. It said that if CIL sells its coal at market prices, its profits will increase by $19 billion (Rs 95,000 crore). It has even initiated legal action against CIL and its directors for breach of fiduciary duty, and for acting against the interest of the general public and shareholders.
Oil companies are incurring losses because the government has not given its go-ahead to increasing fuel prices even as crude prices have risen to over $125 per barrel. In the banking sector, there has been overt pressure on public sector banks to cut lending rates. After the Reserve Bank of India slashed key policy rates by 50 basis points recently, the finance ministry wrote to bank chiefs seeking a cut in interest rates.
There are others who say that as and when the government's finances improve, the view on PSUs will change too. "Oil subsidy is one issue which is yet to be resolved, and that is affecting some of the companies. Also, the government's fiscal deficit has gone up, which raises concern. However, when the government's finances improve, these companies will do well," said S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund.
The fundamentals of the public sector companies remain attractive, Naren said. "The fundamentals are fantastic and we are looking to go overweight on them," he said.
Source: http://www.indianexpress.com/news/mutual-funds-give-thumbs-down-to-psus-cut-stake/942198/0
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