Feb 9, 2013

Our thoughts on Government of India’s Disinvestment plan and what should be the perspective of the retail investors

Our thoughts on Government of India’s Disinvestment plan and what should be the perspective of the retail investors:
Only speculators and government benefits from disinvestment most of the time. Retail investors are sold themes in every boom and now busts too.
Only rise in free float doesn't make any companies share attractive.
Such Things are good for short term investment and speculation but not for the real intelligent investor.
No rational expert will suggest buying into disinvestment companies. If there are any opportunities then they may be only due to valuations and not BECAUSE OF MERELY A FACT THAT GOVERNMENT IS GOING TO OFFLOAD ITS STAKE AND PUBLIC SHAREHOLDING IS GOING TO INCREASE.
Themes have battered investors harshly and we have seen that in dotcom themes, realty theme. The latest is power theme in the last bull market that ended in year 2008. Here we have given some more details of the results of doing such theme based investing. Stock markets are made of investors and speculators alike. If investor gets mixed with speculator gang than he is bound to be misguided.

We don’t oppose investing into govt. companies or disinvestment candidates. We like companies where valuations are fair, top line and bottom-line growth is sustainable whether it s a govt co or a pvt sector co. Investment is never done on themes and fancies of seasonal of bull and bear market. Isn’t it funny that neither investors ask for nor the analysts/experts care regarding the valuations of disinvestment counters?
From the government perspective, our opinion is that getting money from public for spending for public is not a very good idea. The government will be filling it deficits out of disinvestment money. But the government machinery is still not able to tackle several corporations which have to do do compliance according to listing agreement. The government will spend or square it some of the deficit but in a mixed type of economy the deficit is bound to be there over the time. So the disinvestment money is neither going to solve the govt deficit problem any way.
In the long run also study clearly suggests that private companies have delivered way better returns than the PSU cos.
The PSUs comprise of 30% of total market cap, however many of them are banks. This makes it worth considering segment. The point is it should not be made and sold to investors as themes and each IPOs or OFS or FPOs should be valued in isolation and not as a theme.


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