Recently there was an announcement that the government has basically instructed public sector units which have stock prices significantly below their book values to buy back their shares and if the stock price is significantly above the book value to declare huge amounts of dividend pay-outs and or other incentives.
What do you think is going to happen to the share prices of these companies? Either they will buy back their stocks or they will declare huge dividends. Now this is a classic example of western interest which is by a very powerful entity. You can’t have anything more powerful than the government. If the government wants these stocks to go up think about it which way do you think these stocks will go?
The basic look-back period of 20 days in the statistical model showed that PSU stocks were lagging behind the market and there was a possibility of reshuffling of the PSU stocks. The French and the British during the times of Napoleon Bonaparte were basically bitter rivals for international domination. Both wanted to capture as many lands as possible to be able to rule over the world. So to say so Napoleon had a very unique manner in which he would shortlist generals who would accompany him to conquer new lands.
He would ask them if they were lucky for him in that particular campaign in that particular war. Now some not knowing what he meant said we are very good warriors and therefore we will prove lucky to you. Napoleon would put cast them aside. Others would try to get a little more ingenious and say we have consulted an astrologer and your horoscope matches with mine and therefore we are lucky for you. Napoleon would cast them aside as well.
Now there were another kind of generals who would say we are lucky for you because we know you want to conquer a country we ourselves will fight very hard and try to pocket some of the riches for our own selves also. So since we have a vested interest we will fight hard for you. Guess what napoleon would take these generals on his campaigns.
So the biggest bankable aspect in financial markets based on behavioural finance and based on 360-degree worldview based on behavioural studies is that the most dependable thing that you can latch on is vested interest. Especially if it is somebody really powerful and big who has a vested interest in seeing something happen, chances are it will happen. And you should basically latch on to that trend.
Reclassification of PSU stocks: the government has asked about seven to eight state-run companies to consider share buybacks in the fiscal year 2021. The PSUS could be from power energy and metal sectors. Reports suggest among these PSU are coal India, NTPC, NMDC and engineers India limited with a lot of emphasis being on the companies with extra cash.
After meeting, the government is requesting them to look at buybacks if their stock price is lower than the book value and otherwise also if there is extra cash available.
Experts are of the view that the government may be looking to boost its disinvestment proceeds via these buybacks. Since two major disinvestment plans that of oil firm BPCL and the cash trapped air India may not take place in in the fiscal year 2021. Department of investment and public asset management that has so far raised 5695 crore rupees as against the target of 2.1 lakh crore rupees wire disinvestment.
Besides dividends from non-financial, PSU have been budgeted at 65,747 crore rupees during the ongoing financial year while estimates of how much the government would be looking to garner with these buybacks have not been indicated by the government.
but experts are looking at about eight to ten thousand crore rupees although how many buybacks actually take place in this financial year remains to be seen. The government seems to be keen on this keeping in mind that India is also unlikely to be anywhere near its fiscal deficit target of three and a half percent of GDP for FY 2021- as corona virus curbs hit tax collections and delayed efforts to privatize energy firm BPCL and flag carrier- air India on the other hand.
Experts have also expressed concerns on the ability of some of the PSU to be able to do buybacks as the government’s take is just sufficient to ensure its position as a majority holder. There are again reports which hint at possibilities of how the government could seek approval from the cabinet to prune its state to less than 51 in individual firms without giving up control. Or else that the government may also be looking at giving up controlling stake.
India has also tasked 23 state-run companies with capital expenditure of 1.65 trillion rupees this fiscal year. But some of these firms are still facing spending challenges amid the pandemic hit finances. Many people, especially beginners when they start to invest they are like we don’t want to invest in private companies. We want to invest in government companies because they are safe. But problem is majority of them don’t give great returns.
In fact, they have destroyed wealth of investors. But only they give dividends. Still you know if you are a beginner and if you are looking for a government company to invest that would be safe like a good company I have found two stocks which are not only government company but can give returns like private stocks. The MNC stocks, the likes of HDFC, reliance. These stock perform like that. The reason is that and I believe these two companies which are public sector they are very good for investment and if you like it you can invest at them.
In the coming days we don’t know when will it come but you will get chance to buy at lower levels. So you can start buying slowly. 25 percent quantity at 800 then another 25 percent at 750 and then another 25 percent at 730 like that you can add to these companies and hold for long term.
You can generate very good wealth in the coming future. There are good private companies which give excellent returns multi-back or returns but finding a company which is owned by government or you know type of government like state bank of India that type of companies is very difficult because majority public sector companies are very unscrupulous. They don’t give any dividends to directors only we get this dividend.