The government could meet its fiscal deficit targets by selling its Rs61,300 crore stake in ITC, L&T and Axis Bank. But these have turned out to be, by far, the government’s best investments. Shouldn’t it, following the sound investment advice, hold on to its winners and sell its losers first? The government had planned to raise around Rs5,000 crore this fiscal year by selling stakes in companies including ITC, Larsen & Toubro and Axis Bank through the ETF route. Arvind Mayaram, former finance secretary at the finance ministry, had said that the government was considering floating an ETF to sell these shares held by SUUTI (Specified Undertaking of The Unit Trust of India). However, the government has put its plans on hold. There is a lot of criticism that the government is holding on to these shares while fiscal deficit is running high. Should it? Well, the fact is that, the government’s accidental holdings in these companies have turned out to be outstanding investments and compared to its planned investments in public sector companies, from where it gets meagre dividends and hardly any price appreciation, except in a few glorious cases. Smart investors have repeatedly advised traders and investors to follow a simple rule: hold on to the winners; sell the losers. And ITC, L&T and Axis Bank are the stocks that are the big winners for the government. The big losers are in fact its shareholdings in various public sectors companies that need to be supported from time to time like Air India. The government holds 11.27% in ITC worth Rs36,078 crore, 8.18% in L&T worth Rs11,700 crore and 11.66% in Axis Bank worth Rs13,510 crore. As on 12 December 2014, its stake in all three companies is worth approximately Rs61,300 crore. All these stakes are held indirectly by SUUTI, created in 2002 after the then UTI was wound up. In five years, the value has gained 157% or 21% annually from Rs23,850 crore as on 12 December 2009. Even over three years, the value is up 48% or 14% annually. This is not the first time the government has planned to sell its stake in these top performers. The government has been mulling over this for the past few years. In 2011, the government had planned to pledge shareholdings of SUUTI to buy shares of state-owned companies in its attempts to meet the disinvestment target. That never happened. It finally got down selling approximately 9% in Axis Bank in March this year, bringing its holding down to 11.66%. The transaction was the first major divestment of shares held by SUUTI. If it had held on to that stake, the government would have been richer by Rs852 crore now. Then in 2014 it planned to sell its stake via the ETF route, like it did for other PSUs in March 2014. However, this too, seems to have been put off. Ironically, the government got saddled with the shares of these professionally-run blue-chip firms while it rescued Unit Trust of India in 2002. UTI was split into UTI Mutual Fund and SUUTI, to bail out investors in Unit Scheme 1964. And now, these investments have delivered extraordinary returns. In his maiden Budget in July, Finance Minister Arun Jaitley set a target of Rs58,425 crore to be raised through selling its stakes in state-run companies and part holdings in private companies. He would do well to sell many of hundreds of losers the in the government’s portfolio than these big winners.
Posted on: Tue, 16 Dec 2014 09:08:08 +0000
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