Stocks bleed as privatization jitters state-run firms

Thursday, 03 October 2002, 19:30 IST
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NEW DELHI: India's state-owned company stocks are under heavy selling pressure for the last one-month as dark clouds engulf India's ambitious privatization process due to squabbling within the ruling coalition. Market players, both domestic fund managers and foreign institutional investors, have significantly pared off their exposure on public sector, fearing the fragile reforms may be at risk of stumbling. As a result of the massive stock sell-off, investor wealth has taken a substantial dip. Market capitalization of five stocks declined by about 100 billion, or 26 percent, in one month. "There is little hope that the government will be able to privatize the heavyweight public sector units (PSU) within this fiscal year," Neeraj Deewan, a senior analyst with brokerage firm Quantum Securities, said. The PSU privatization was the only reform process gaining momentum in the last one year, raising expectations of domestic and foreign investors. "The investors have realized the fact that the process has completely been taken over by politics. Investors are certainly very disappointed and disillusioned with the setback to the privatization drive," Deewan said. Shares of state-run oil majors Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) have declined by a whopping 37 percent and 36 percent respectively in just a month. Last month the government was forced to put off the divestment of HPCL and BPCL by three months following stiff protests from Oil Minister Ram Naik and Defence Minister George Fernandes among other coalition members. The disinvestments ministry has reportedly decided to return the application money of investment bankers who had submitted bids to manage the divestment process of HPCL and BPCL. Industry observers say there is little hope that the two state-run oil companies would now be divested in the current fiscal year ending in March. The government has gone back to square one on the issue of privatization, they say. Stock of public sector National Aluminium Company Ltd. (NALCO) has tumbled 26 percent in a month to 84.80 Tuesday as uncertainty continues over the divestment of the aluminium maker. Orissa Chief Minister Navin Patnaik has sought a meeting of India's ruling National Democratic Alliance to discuss and possibly review the NALCO privatization plan. Patnaik's Biju Janata Dal is a member of the coalition. All major political parties in the state, except for Prime Minister Vajpayee's Bharatiya Janata Party (BJP), backed a strike call on September 29 against New Delhi's bid to privatise the 32-billion NALCO operating in this state. Uncertainty also looms over sale of about a dozen firms under the administrative control of the heavy industry ministry following Minister Balasaheb Vikhe Patil's statement that he preferred sale of PSU stocks in the market to strategic sale. Patil, a nominee of the Shiv Sena, a key ally of the ruling coalition, is the latest to call for a review of the government's divestment policy. As a result of the slowdown in the reform process, the foreign institutional investors (FIIs) have pulled out $53 million from the equity segment after the cabinet committee on disinvestment meeting on September 7. According to the Securities and Exchange Board of India, FIIs pulled out $175 million from India as of September 23. "Whenever FIIs have come to the market it has been as a seller after the deferment of the sale of BPCL and HPCL," said a broker with the market barometer Bombay Stock Exchange. The latest setback to the country's ambitious privatization drive comes after the government ignored criticism and sold its stake in a telecom giant, an oil firm and the country's largest joint venture carmaker, earlier this year. New Delhi plans to raise 120 billion from sales of shares in state-owned firms in the current financial year. It has repeatedly failed to meet targets in the past because of stiff protests from opposition parties and trade unions.
Source: IANS