Over the weekend we searched through a multitude of investment
gospel in our quest to find a reason for investing in so called Public Sector
Enterprises or simply PSUs.
Not one, not even for argument sake, gave an iota of hint that
in any circumstance one might consider investing even a tiny amount in a
business:
(a)
where the management lacks transparent and
accountability;
(b)
where the management is corrupt, incompetent
and/or instable;
(c)
where management has historically and brazenly
violated the rights of minority shareholders;
(d)
that operates under highly inconsistent policy
environment;
(e)
that does not have control over pricing its
products;
(f)
that is often forced to deal will bankrupt
customers;
(g)
where senior executives are appointed on the
basis other than expertise in the area of operation;
(h)
which are riddled with excessive bureaucracy but
management has no control over the appointments, promotions and compensation.
(i)
which are egalitarian in their operating mission
and more often work for social cause rather than optimization of profit.
(j)
which need political sanctions for managing
their capital structure.
In our view, most of India’s PSEs, suffer from these limitations
and hence may not qualify to be good investments.
Moreover, the speed with which we are heading towards crisis
would inevitably bring our audacious government on knees in front of foreign
investors and most of the economy will be opened up to them for attracting
capital flows. No one will remember that we almost sacrificed the government
over trivial issue of opening few Wal-Mart stores
Under these circumstances, most public sector undertakings
should crumble. Many like BHEL may not be able to withstand the increased
global competitive intensity. The rest like Coal India will be sacrificed at
the altar much like BSNL, MTNL and Air India (all coveted monopolies at one
time). The nightmare would be LIC going the UTI way, given that it is being
made to scavenge all the political s#$t every morning.
The majority shareholder (government) has consistently and
blatantly oppressed the minority shareholders in these companies – by not
allowing them to fix the prices of their products, raise capital when required,
make investments where and when desirable and disallowing the managements to
restructure their costs (especially employee cost) during downturns. Moreover,
there is no legal guarantee that the current fuel pricing mechanism will
continue for, say next 5years.
We continue to suggest avoid on all PSUs, notwithstanding
anything. Short sell banks, BHEL, BEML and BEL.
Thought for the day
“Goals are important. Means are equally important”
- Unknown
Word of the day
Rendezvous (v):
To assemble at an agreed time and place.
(Source: Dictionary.com)
Shri Nārada Uvāca
Anyone who travelled to the WORLD CLASS T-3 terminal of Delhi airport on Saturday will certainly have some questions in mind?
So would those who heard BJP President Rajnath Singh’s criticism of English language!
After all Mr. Modi is promising a WORLD CLASS economy to the Indian public.
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