India - Politics, Industrials, IT and Large Caps, EMAlpha

Pankaj Sharma

India - Politics, Industrials, IT and Large Caps

Thematic (Sector/Industry)

In a change of strategy from the Central Government on how to raise money through PSUs, there is an increased possibility that buybacks could become the preferred option over disinvestment because of not-so-good market conditions and consistent underperformance of PSUs over some time. While a large and 'at premium' buyback by PSUs could temporarily help the stock price, the support is unlikely to last long. There is a negative impact on balance sheet health, less money available post buyback for growth plans and questionable timing. The share buyback will not really do much to address the medium and long term underperformance of PSU stocks unless fundamental issues are resolved.

In a change of strategy from the Central Government on how to raise money through PSUs, there is an increased possibility that buybacks could become the preferred option over disinvestment because of not-so-good market conditions and consistent underperformance of PSUs over some time. While a large and 'at premium' buyback by PSUs could temporarily help the stock price, the support is unlikely to last long. There is a negative impact on balance sheet health, less money available post buyback for growth plans and questionable timing. The share buyback will not really do much to address the medium and long term underperformance of PSU stocks unless fundamental issues are resolved.

India: Share Buyback Could Be Positive for PSUs, but It Will Only Be a Temporary Relief

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more than they can afford. There are other headwinds as well such as higher oil prices and this implies that NDA Government will try to raise money from wherever possible and State owned enterprises could see a more aggressive disinvestment in 2H FY19. There are already reports that <a href="https://www.smartkarma.com/entities/9117" target="_blank" data-smartkarma-citation="entities:9117:1">Coal India Ltd (COAL IN)</a>, <a href="https://www.smartkarma.com/entities/460" target="_blank" data-smartkarma-citation="entities:460:1">Bharat Heavy Electricals (BHEL IN)</a> and <a href="https://www.smartkarma.com/entities/11842" target="_blank" data-smartkarma-citation="entities:11842:1">NTPC Ltd (NTPC IN)</a> will be among the key targets for stake sale by the Central Government and we think this is a risk for these stocks.

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more than they can afford. There are other headwinds as well such as higher oil prices and this implies that NDA Government will try to raise money from wherever possible and State owned enterprises could see a more aggressive disinvestment in 2H FY19. There are already reports that Coal India Ltd (COAL IN), Bharat Heavy Electricals (BHEL IN) and NTPC Ltd (NTPC IN) will be among the key targets for stake sale by the Central Government and we think this is a risk for these stocks.

Disinvestment Is Major Risk for PSUs in Pre-Election Year: Negative For Coal India, NTPC and BHEL

Asia focused research insights & advisory, Asia Advisors

Vinay Patel

Asia focused research insights & advisory

Asia Advisors

Asia Advisors is an independent financial advisory and research firm working closely with corporates and institutions to provide consulting solutions & research insights. We provide advisory services including capital solutions, business strategy and investment insights.
Firm is headed by Vinay Patel who has close to two decades of experience in research and business development at large, international investment banks such as HSBC and ICICI Securities. Led research efforts in areas of Macroeconomics, Asset Allocation & Investment Strategy for close to a decade in global & domestic research teams. As a business head in Singapore, advised top global investment management firms & Portfolio managers in Asia for India related investments.
Vinay was recently joined by Swapnil Manish, an investment banker and ex-ecommerce entrepreneur with more than 12 years of experience. Swapnil was the TMT banker at BNP Paribas and was part of several large M&A and ECM transactions (Bharti-Zain, Bharti Infratel IPO, Schneider-Zicom among several others). He's also had a stint as an ecommerce entrepreneur having launched & led Mumbai's first online grocery player.

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this win to ease Modi's chances for another term at national elections in 2019 and that would give him total 7 year period to push for reforms (In his victory speech Modi himself said he is now looking for delivering by 2022 - the 75th year of Indian Independence). Amidst the euphoria of Modi's victory, we would like to highlight some of the ground realities…

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this win to ease Modi's chances for another term at national elections in 2019 and that would give him total 7 year period to push for reforms (In his victory speech Modi himself said he is now looking for delivering by 2022 - the 75th year of Indian Independence). Amidst the euphoria of Modi's victory, we would like to highlight some of the ground realities…

Investors Need To Be Patient With Reform Momentum Even As Modi Win Ensures Policy Continuity

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact of demonetisation on the electoral prospects of the party. Performance in UP is impressive as the opposition had formed an alliance to fight Modi but still lost poorly.  Most political analysts have been caught on the wrong foot as they predicted a hung assembly while the results show that Modi wave seen during the General elections continues. We…

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact of demonetisation on the electoral prospects of the party. Performance in UP is impressive as the opposition had formed an alliance to fight Modi but still lost poorly.  Most political analysts have been caught on the wrong foot as they predicted a hung assembly while the results show that Modi wave seen during the General elections continues. We…

Landslide Win for Modi in UP Elections;Upper House No.s to Cross 100 Mark by 2018, a +ve for Reforms

Information Technology Consultant

Ishita Jain

As per the Financial Times ("FT") <a href="https://www.ft.com/content/4f88cb60-f8f7-11e6-bd4e-68d53499ed71" target="_blank">article</a> dated 24th Feb 2017, electric vehicle ("EVs") manufacturers and battery producers have been scrambling to secure supplies of Cobalt. This has been driven by the fact the a handful of hedge funds have purchased and stored Cobalt on expectations that the demand for EVs will pick up. Battery producers such as Panasonic, who supply Lithium Ion ("Li-ion") batteries to the likes of Tesla are hard pressed for supplies. As FT reported, prices have risen by more…

As per the Financial Times ("FT") article dated 24th Feb 2017, electric vehicle ("EVs") manufacturers and battery producers have been scrambling to secure supplies of Cobalt.   This has been driven by the fact the a handful of hedge funds have purchased and stored Cobalt on expectations that the demand for EVs will pick up. Battery producers such as Panasonic, who supply Lithium Ion ("Li-ion") batteries to the likes of Tesla are hard pressed for supplies.  As FT reported, prices have risen by more…

India

NMDC Limited explores for minerals. The Company is exploring for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands.

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Nmdc Ltd (NMDC IN)

Disinvestment Is Major Risk for PSUs in Pre-Election Year: Negative For Coal India, NTPC and BHEL

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more...

Pankaj Sharma

Investors Need To Be Patient With Reform Momentum Even As Modi Win Ensures Policy Continuity

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this...

Asia Advisors

Landslide Win for Modi in UP Elections;Upper House No.s to Cross 100 Mark by 2018, a +ve for Reforms

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact...

Asia Advisors

Future of Cobalt Vis-A-Vis EVs

As per the Financial Times ("FT") article dated 24th Feb 2017, electric vehicle ("EVs") manufacturers and battery producers have been scrambling to...

Ishita Jain

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52-week Range

Market Cap (USDm)

P/E

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India: Share Buyback Could Be Positive for PSUs, but It Will Only Be a Temporary Relief

In a change of strategy from the Central Government on how to raise money through PSUs, there is an increased possibility that buybacks could...

Pankaj Sharma

Disinvestment Is Major Risk for PSUs in Pre-Election Year: Negative For Coal India, NTPC and BHEL

It is a norm that in a pre-election year, the democratically elected Governments become much more populist in their decisions and spend a lot more...

Pankaj Sharma

Investors Need To Be Patient With Reform Momentum Even As Modi Win Ensures Policy Continuity

Expectations on economic reforms from Modi government are running high after the big win in Uttar Pradesh. Political analysts are expecting this...

Asia Advisors

Landslide Win for Modi in UP Elections;Upper House No.s to Cross 100 Mark by 2018, a +ve for Reforms

Ruling party BJP has won a landslide victory in the largest state of Uttar Pradesh (UP) thereby putting to rest any doubts over the adverse impact...

Asia Advisors

Future of Cobalt Vis-A-Vis EVs

As per the Financial Times ("FT") article dated 24th Feb 2017, electric vehicle ("EVs") manufacturers and battery producers have been scrambling to...

Ishita Jain