Millennium Post

Ordinary stockholders fall victim

Why does the government have to routinely make distressed year-end sale of PSU stocks to cover its annual budget deficit at a huge cost to ordinary shareholders? For instance, for only Rs. 5,030 crore the government sold some 41.22 crore NTPC shares, representing five percent of its stake in the country’s largest power company, at a throwaway floor price of Rs.122 apiece. Twenty percent shares were reserved for retail investors. The sale deal was opened and closed just a few days before the 2016-17 Budget was presented in the Parliament. Stock traders knew it was coming. NTPC stock prices remained suppressed for quite some time. In fact, few PSU stocks in the market command a fare value vis a vis private sector competition. Before the NTPC sale offer, the scrip was trading in the secondary market at Rs 124.70, down 1.69 percent over the previous evening close.

Last time, the UPA government sold its NTPC holding (9.5 percent) on February 13, 2013 to raise some Rs. 12,000 crore, days before  the presentation of the 2013-14 budget. Once again, it was meant to control a part of the year’s budget deficit. The offer price was Rs. 145 per share. Over the next three years, the price remained generally suppressed while most listed blue chips from the private sector zoomed in the wake of the Modi wave. The stock prices crashed in the last three months. But, the Sensex gained by over 700 points within 48 hours of the 2016-17 budget. Thus, instead of making any gain, ordinary mid-term investors in NTPC shares were made to lose Rs. 23 per share. Thus, going by the thumb rule, the 2013 investors in NTPC stocks lost around Rs. 2,000 crore as of February 23, 2016. The stockholder value in other large blue chip public sector companies lost well over Rs. 10,000 crore in the intervening period. Institutional investors know that the shares of those companies are on distress sale irrespective of their balance sheet performance, capex, net asset value and market control in their respective sales segments. The increase in the budget plan assistance to PSUs in 2016-17 is down to 0.4 per cent against 65 per cent this year.

Does NTPC or, for that matter, any other high performing, steadily large dividend paying state-sector enterprise deserve such a shabby treatment from their promoters? What is the message the government seeks to serve the market, institutional and retail shareholders through such pre-budget distress sale of its stocks? The public sector enterprises like NTPC, ONGC, IOC, GAIL, SAIL, CIL, and BHEL are among the best performing companies in the world in their respective fields. The frequent distressed stock sale not only affects the market and hurts the pockets of investors, but also impacts the morale of the management and employees, most of whom are retail investors in their respective companies. Much worse-performing rival private sector enterprises enjoy a lot better Profit-earning (PE) ratio in the market thanks to the support from their promoters, including market manipulation, whenever necessary.

It is often forgotten that the public sector asset is a national asset built with the help of taxpayers’ funds. The taxpayers or the public have the right to know why the government sells these assets at its whim without specific reinvestment agenda to build more measurable wealth for the nation.  In the 2016-17 budget, the estimated plan expenditure that is largely expected to create additional wealth for the nation is only Rs. 5.50 lakh crore as against the total budget spending of over Rs 19.78 lakh crore. In the context of industry, the government seems to have left the responsibility of investment, large and medium, to foreign enterprises as domestic investors are short of excess funds to create new capacities in the generally demand-starved market for manufactured goods. The last few budgets looked somewhat direction less though the next year’s budget is definitely pro-agriculture, pro-small enterprises and pro-poor. While the pro-agriculture budget is most welcome and the government’s resolve to double the agricultural income within the next five years or so is most appreciated, the bold initiative is not going to have much direct impact on the government’s revenue collection as agriculture income continues to be tax free. High agriculture sector earners will continue to indulge in conspicuous spending and black money hoarding.

The incidence of taxation -- indirect and direct – has already reached uncomfortable and unsustainable levels. To mop up higher and higher tax revenues, the industrial base must widen to generate more and more tax payers. High taxes will lead to low level of tax compliance. This is being already noticed in the case of service tax and VAT collected but not paid to the exchequer in a host of small and medium enterprises, including restaurants and variety sales outlets. Consumers are often given hand-written bills. Lower taxes on a larger and growing base are the best way to boost revenue receipts of the government. Unfortunately, the government does not seem to have any mid or long-term plan to grow the industry and market to raise tax revenue. Instead, it is going for easier options like PSU stock and asset sales and raising taxes, levies and cess. High taxes are hurting PSUs more than any other producers in terms of both domestic sales and exports as no government company indulges in tax manipulation. They are also most hurt from import dumping.

The government has budgeted Rs 56,500 crore of revenues from disinvestment next fiscal, including Rs 20,500 crore from strategic asset sales. Niti Aayog and the government plan to assess the possibility of strategic asset sale in as many as some 80 state-owned companies under its renewed disinvestment programme. One only hopes that Niti Aayog also makes a study of the result of previous PSU asset sales involving companies such as Jessop & Co, IPCL, and Balco and how they benefited the nation and the exchequer before it takes a final decision on the subject. IPA 

(The author is a senior commentator on economic and political affairs. Views expressed are strictly personal)
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