The Government has set ambitious revenue collection targets which have barely been met till now with just 3 months left for the current fiscal to end. The government had planned to raise Rs 40,000 crore by selling stake in Public Sector Undertakings in the Financial Year (FY) 2013-14; but it has managed to collect a little over Rs 1,300 crore as yet. Indifferences within ministries, opposition by trade unions and poor stock market performance of Public Sector Undertakings (PSUs) are said to be the main reasons for poor performance of the Government on disinvestment front. However, this time, instead of diluting stake by launching Follow-on Public Offers (FPOs), the Government is coming up with an Exchange Traded Fund (ETF) comprising 11 bluechip PSU Stocks.

PSU ETF…
The Empowered Group of Ministers (EGoM) cleared the proposal of finance ministry last weekfor selling the stake of Government by launching a PSU ETF. The Government is expected to garner about Rs 3,000 crore by this route. Earlier this fiscal, Goldman Sachs has been chosen by the Government as the fund manager for managing PSU-ETF.

How PSUs have fared?
The performance of PSUs has been lacklustre over past few years. Out of the basket of 11 PSUs which have been shortlisted for the ETF; only 1 has generated positive returns over last 1 year. Stocks of remaining companies have underperformed broader markets by a huge margin.

What investors should do?
PersonalFN is of the view that, you would be better off if you avoid a sectorial or a thematic fund. Although sectorial funds may outdo broader markets when the underlying sector or a theme is doing well; they might incur heavy losses when the sector hits a rough patch. As far as investing in PSU ETF is concerned, PersonalFN believes, it should be avoided too.

PSUs suffer governance related issue. Decision making at PSU companies is severely influencedbythe expectation of the Government. Under difficult economic conditions, profits of many PSU companies are impacted negatively. Despite of which, the Government nags PSUs for higher dividends. Moreover, often, cash rich PSUs are pressurised to buy shares in other companies in case they had no big capex plans. Such practices are affecting sentiment of non-government investors which is reflected in the relentless fall in stock prices of public sector companies over last couple of years.

In case of PSU ETF most of the constituting stocks belong to sectors such as mining, capital goods and oil and gas. These sectors have been hit hard by the prevailing lull in the economy. Moreover, composition of PSU ETF is highly skewed as just two stocks have a very significant weightage in the portfolio. ONGC and Coal India belong to sectors which are heavily affected by the change in the government policies. They have generated -6.0% and -21.0% returns respectively over last 1 year which shakes the confidence. PersonalFN is of the view that, instead of investing in PSU ETF to benefit from movement of a particular sector or theme, you should invest in an opportunities fund. Opportunity funds are the diversified mutual funds following no bias towards a particular market capitalisation or a sector.

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