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Government Stocks on Skid Street

Yesterday, MTNL hit Skid Street and touched the magic 52-week low figure of Rs 123. MTNL can take comfort from the fact that it's not the only scrip on skid row. If it is distressed that its market cap has slipped from Rs 14,178 crore in January to Rs 8,651 crore now, it could take heart from the fact that VSNL is doing worse, having slid from Rs 19,950 crore in January to Rs 7,855 crore.

It's a kind of awakening even the Government of India is going through. In fact, everytime it announces the opening up of a sector, the wealth of its own enterprises comes down---sometimes precipitously. And the numbers say it better than words ever will. Consider these sliding market cap numbers:

Indeed, over the past 12 months, the market cap of the companies owned by the industrial house called the Government of India has slid from Rs 1,37,630 crore to Rs 87,776 crore. There are other instances too of the Government's track record in managing businesses---and fortunately it is not yet plastered in digital across terminals of brokers, bankers and investors.

The point being made here is that every day, every month, every year the Government gets reminders that it has no business being in business. What is more pertinent is that the wealth of the people of India is being squandered because the Government is opening up new sectors without selling out PSUs. Rather, it needs to sell its stake out of PSUs as sectors are opening for two reasons: the Government's excuse of public purpose to be in business is eroded once the sector is opened up and secondly the value of its enterprise will erode with the loss of monopoly and a Government management.

The most telling example of course is Maruti. Barely two years ago, General Motors was willing to pay over $2 billion for a 50 per cent stake in the car company. Today, it is doubtful if anyone would be willing to pay over $500 mn to $800 mn. The reason is on the roads and in Maruti's market share which has dipped from 82 per cent to 52 per cent. The same fate awaits MTNL and VSNL. Its shares (quoting close to 52 week lows) are on a one-way downhill street.

To understand this better consider this. Both MTNL and VSNL have been crying hoarse for a strategic partner. Last year, a share of MTNL would have sold at Rs 390. Today it would fetch only Rs 123. Similarly each share of VSNL would have got the Government of India Rs 3,250. Today it could get around Rs 780. Ditto with the oil sector. Each share of Indian Oil would have fetched around Rs 325 while today it would be Rs 140. A share of Bharat Petroleum would have earned the Government Rs 450 but would now get only Rs 170. The loss of over 60 per cent of the value is simply because the Naiks and Paswans of the world do not understand this simple arithmetic.

Take the case of insurance companies---mercifully not listed. With the advent of private players, the value that has been invested in LIC and GIC would obviously erode. And the losers will be the people of India whose hard-earned money was invested in these behemoths. Obviously the Government needs to unload a chunk to a strategic investor ---

a. To encash part of its investment;

b. To bring in expertise/technology/better management and service via a private player.

If the Government is keen to retain the 'Indianness' of the institutions' character, it could well state that the strategic private partner cannot be a foreign player. It could be Reliance Industries---which has steadfastly rejected all foreign suitors in the insurance business---or an equally competent and cash-rich house. The qualification simply is that the Indian player helps the Government encash and add value to the enterprise.

At a recent conference in Delhi, former MP Murli Deora told Arun Shourie that if they didn't do something fast, both LIC and GIC could go the Maruti way. And he wasn't joking. This Deora-speak may well come to haunt the Government. Watch this space next September.

(V Shankar Aiyar is Associate Editor, INDIA TODAY. He is based in Mumbai.
Write to V. Shankar Aiyar.)

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