Investors have bought enthusiastically in India’s public sector and have been rewarded handsomely for their efforts. Public sector enterprises are leading the market capitalisation sweepstakes on specific government policies, and the expectation of policy continuity is fanning the exuberance. NTPC and Coal India have benefited from India’s stand at climate talks that coal should not be singled out among fossil fuels for cutback commitments. LIC is in the process of transferring a slice of its profits to investors after listing. IRFC and REC are direct fallouts of GoI’s bumped-up capital expenditure in railways and electrification. IOC improved its refining margins on easing crude oil prices, a process aided by New Delhi’s decision to buy discounted Russian crude in circumvention of a Western blockade.
Beyond these top wealth creators, the overall performance of the pack of listed PSUs in 2023 is a validation of the government’s economic management as well as its execution through state-owned enterprises. Alongside, incremental reforms in governance are helping close the valuation gap of PSUs with their private sector rivals. The third factor in play is GoI’s stated intention of trimming its ownership in PSUs to promote efficiency. Investor expectations over languid disinvestment are being built up by their reading of the outcome of general elections later this year.
Investor behaviour has changed dramatically from much of India’s reform experience since the 1990s when the accepted wisdom was to bet against state enterprise. The private sector led in productivity gains in sectors where state monopolies were being dismantled and built investor wealth. It would, however, be too early to read a turnaround in PSU productivity. Some of the PSU valuation increase is due to self-limiting causes like government capex and credit-funded consumption. The current bout of investor interest can feed a wider divestment pipeline with better exit prices for the government and improved market-led governance of PSUs.
