COME ONE, COME ALL TO THE “BIG SALE” OF STOCKS: “BUY AT ATTRACTIVE VALUATIONS”
The Government of India had recently put on block sale in certain companies like NMDC, NTPC, SAIL, Oil India, etc in order to raise funds to meet the alarming fiscal deficit of India and other reasons such as to make these companies more compliant with the public shareholding norms mandated by SEBI. The Government has raised almost INR24,000 crore through the divestment programme in FY13 by shedding its stake in seven companies named NMDC, NTPC, SAIL, Nalco, Hindustan Copper, Oil India and RCF.
As we know, out of the above mentioned companies, some of the companies are bluechip companies with sound business model, strong financials over the past years, healthy balance sheet with sound cash balance and possess growth visibility over the coming years.
“Looking at the sharp stock price collapse ‐ Fundamentals have NOT deteriorated equally”
Prior to the OFS (Offer for sale), these stocks had already corrected and reached to the levels of the floor price, thus, making the valuations attractive and risk‐reward favourable for the investors. Many believe that apart from the weak market sentiments, the spree of divestment has been the major dampener for the downward trajectory in these PSU stock prices. Hence, we strongly believe that the fall in the stock prices does not justify the strong valuation. We think that some of these PSU stocks are good investments in for a long term perspective because of strong fundamentals, good volume growth visibility leading to improved top line, lower interest burden which paves way for higher earnings and huge cash balance which leaves scope for higher dividend payouts and also scope for leverage.
Why was OFS a Fiasco?
One major criticism of the OFS route, in fact, was that it didn’t encourage retail investors, as there was neither any quota (minimum 35 per cent in the case of Initial Public Offer/Follow‐On Public Offer) nor a special discount for such investors. Moreover, it was not easy for retail investors to bid at auctions — which is what the OFS essentially is — like FIIs and other institutions. The consolation, though, is that retail investors can still buy the shares of “NMDC, NTPC, SAIL & Oil India” given that their current market prices of INR130, INR 144, INR 61 and INR 521 (as on 4th April’13) are ruling below or almost equal to the levels at which they were divested.
Hence, we believe that “Weak market sentiments” coupled with a negative thought of “No takers for OFS and LIC bailing out the same” had led to correction in these stocks. At the CMP, we recommend a “BUY” to some of the selected stocks named NMDC, NTPC, SAIL and Oil India on back of its attractive valuations justified in the report. We believe the unwarranted pessimism may soon lie to rest and investors are likely to chase these stocks sooner than later, justified by their attractive valuations.
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