Belying Hopes

With private sector missing from action, PSUs were expected to play saviour, an expectation they failed to live up to

- DIPAK MONDAL

Public sector units (PSUs) account for 12.5 per cent market capitalisation of BT 500 universe and a significant chunk of the economy. When the economy was struggling to cope with Covid-19 and the resultant lockdown, many had expected that the government would unleash their full potential to support the economy. The idea was to push capex through large PSUs and lending through large public sector banks (PSBs). But that doesn’t seem to have been the story.

As per the Reserve Bank of India (RBI) data, gross bank credit fell 1 per cent between March 27 and September 25. Investments in new and completed projects during first six months of FY21 fell 37 per cent from ₹8 lakh crore to ₹5 lakh crore, says CMIE. According to National Statistical Office, gross capital formation was down almost 50 per cent in first quarter of 2020. While these numbers reflect performance of both private and public sectors, it is clear that the public sector’s performance was not up to the mark.

“PSBs should have been the biggest funders of growth and CPSEs the biggest capex spenders, but that does not seem to have happened, as they do not have the money,” says head of equity and research of a brokerage firm. Most PSUs, in fact, got de-rated further because of negative earnings in FY21. “Worse, earnings visibility is very poor for the next two-four quarters. There is complete lack of re-rating trigger for them,” he says.

BT500 data may not paint such bleak picture but shows the cracks. A good number of large PSUs have seen a 15-40 per cent shrinking of average market cap between October 1, 2019, and September 30, 2020. These include crown jewels like ONGC, Coal India, IOCL and GAIL. The damage has been across the board – oil and gas exploration/marketing, metals and finance.