Kotak Warns: PSU Stocks Witness Sharp Valuation Expansion
Kotak highlights the significant expansion in valuations of PSU (Public Sector Undertaking) stocks over the past few months. The advisory cautions that high valuations may diminish the interest of potential bidders, even if the government expresses eagerness to privatize some PSUs.
Kotak Cites Example of BPCL, Warns of Limited Interest in PSU Stocks
Kotak has cited the example of BPCL, indicating that the limited interest among potential bidders is due to the perceived sunset nature of the oil refining and marketing sector.
Kotak Rules Out Privatisation of Larger PSUs, Citing Government’s Stated Policy
Kotak Institutional Equities has ruled out the privatisation of most larger PSUs, citing the government’s stated policy to retain control over one or more PSUs in a strategic sector.
Kotak: Government’s Policy to Retain Control Over Key Sectors Limits Complete Privatisation of Major PSUs
Kotak Institutional Equities highlights that the New Public Sector Enterprise Policy, introduced in February 2021, classifies certain sectors as strategic for national security, energy security, critical infrastructure, etc.
The note from Kotak Institutional Equities highlights BPCL as an example of limited interest among potential bidders due to the perceived sunset nature of the oil refining and marketing sector.
The distinction is made between strategic (long-term view of the sector) and financial (relatively short-term view) investors. The cautionary note suggests challenges in attracting interest and investment in PSUs, despite hopes of privatization.
Kotak Institutional Equities expresses skepticism about the privatisation thesis for Public Sector Undertakings (PSUs), questioning whether it is an ex-ante reason or a post facto justification for the recent surge in PSU stock prices.
The note cites surprises in the privatisation argument given the government’s stated policy, practical challenges witnessed in attempts to privatise companies like BPCL and CCRI, and the high valuations of PSUs compared to their private sector counterparts.
The cautionary stance highlights concerns about inflated valuations and challenges in the privatization process.
The note from Kotak Institutional Equities emphasizes that the surge in valuations of most PSUs could potentially deter potential bidders, even if the government expresses interest in privatization. It points out that some potential candidates for privatization in non-strategic sectors, such as metals and transportation, now trade at a significant premium compared to their private sector peers.
