How government owned companies have destroyed investor wealth?

Investment

oi-Sunil

By Sunil Fernandes

Published: Friday, February 14, 2014, 8:52 [IST]

In the last one year, companies in which the government holds a majority of shares, including government owned banking entities have destroyed investor wealth significantly.

On Thursday, majority government owned company stocks including the likes of ONGC, Bharat Heavy Electricals and Coal India were some of the biggest losers on the Nifty.

Big destruction in the last few years

The stock of MMTC which exactly a year ago was quoting at Rs 650, is now Rs 47. An investor who a year back purchased 100 shares at Rs 65,000, has now stock of MMTC worth just Rs 4700.

The share price of Bharat Heavy Electrical was quoted at almost double its current price till about two years ago. It's halved since than.

The PSU banking space is not far behind. Until a year back, Canara Bank was trading at Rs 450, its is now trading at Rs 212.95. Oriental Bank till a year back was trading at Rs 310, its is now at Rs 161.80. Almost all of the PSU banking shares including the likes of Union Bank of India, Dena Bank and others have halved in value in the last one year.

The problems

The problems with different set of government companies is different. But largely, most of these undertaking are not nimble footed to negotiate a slowdown successfully.

Take the case of Bharat Heavy Electricals. It largely faces threats from power equipment imports and depends on the government to impose duty on power equipment, after which it is likely to thrive. Profits have been badly eroded in the last few quarters with fierce competition from imports and a moribund power sector.

Coal India is a virtual monopoly business, but frequently faces issues like labour problems. In some cases it's the fault of the government as well, which tend to milk these companies. Recently, Coal India was made to pay hefty dividends to bridge the government's fiscal deficit.

ONGC has to bear the subsidy bill, which it recently described as "backbreaking".

Government owned banks are saddled with bad debts, which has now reached catastrophic levels. Economic slowdown has taken a toll on non performing assets at these banks, in comparison to private sector peers. In fact, bad debts at banks have doubled since 2009 and most of these are problems with the government owned banks.

All these problems is certainly not good news for investors.

Clearly, the government owned stocks to revive must be nimble footed, more competitive and must see less interference from the government. Of course, an economic revival will only help.

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