MCA & ICAI’s mantra: Invest in PSU IPOs!

A good article from moneylife

The Ministry of Corporate Affairs and Institute of Chartered Accountants of India’s idea of investor “education” is to tell you to invest in IPOs of PSUs! This has been a recipe of losing money

The Ministry of Corporate Affairs (MCA) and the Institute of Chartered Accountants of India (ICAI) have come out with a special edition of ‘A Beginner’s Guide to the Capital Market’. This book, dispensing investment wisdom, includes ‘20 Mantras to Wise Investing’. The 5^th Mantra says: ‘Surely Invest in Every PSUs IPOs’. “IPOs are only from very good and profitable PSUs; also very little risk of fraud. There would always be a discount for the retail investors. Don't get bothered by the listing price; stay invested.”

Well, unlike the babus at MCA and ICAI fattened with money from Investor Education and Protection Fund but are totally unaccountable, Moneylife believes in checking data before coming to investment conclusions. And here is the data.

 

Since 2010, when this booklet was first published, five public sector units (PSUs) have entered the capital markets. However, except National Buildings Construction Corporation Ltd (NBCC), all others have performed very badly. In fact, some of them even failed to cross their listing price.

The S&P BSE Sensex hits a record high on 25^th March at 22,079.96. If you had bought shares of PSUs from IPOs, which came after 2010, how much return would you have got by following “Mantra 5”?

PSUs	Listing Date	Listing day closing price	Closing price of 25/03/2014	Returns in % as on 25/03/2014
NBCC Ltd.	12-Apr-12	97.05	155	59.71%
SJVN Ltd.	20-May-10	25.05	20.75	-17.17%
Coal India Ltd.	04-Nov-10	342.25	273.9	-19.97%
MOIL Ltd.	01-Nov-10	466.5	247.05	-47.04%
United Bank Of India	18-Mar-10	68.8	27.45	-60.10%
Punjab & Sind Bank	30-Dec-10	127.05	41.6	-67.26%

This once again proves that investment wisdom is dime-a -dozen and that you can never rely on anything that easily. For whatever its worth, we had identified the investment potential of NBCC and written about it in the Street Beat section of the magazine. NBCC: Solid Foundation. It came with an IPO two years ago. It was listed at Rs100 per share on 12 April 2012. It hit a 52-week high of Rs174.05 on 2 January 2014 and a low of Rs96.05 on 2 August 2013.

 

SJVN Ltd

SJVN Ltd, earlier known as Satluj Jal Vidyut Nigam Ltd is Hydro-electric power PSU. It got listed on 20 May 2010 at Rs28 and closed the day 10.54% lower at Rs25.05. It made its 52-week low at Rs18.30 on 25 September 2013 and 52-week high at Rs22.70 on 25 November 2013. Till date, it is nowhere near its listing day opening price. As on 25 March 2014, its share prices were down 17.17% compared with its closing price on its listing day.

 

Coal India Ltd (CIL)

The largest coal producer of the world, CIL entered market with an offer price of Rs245 per share. The IPO got over-subscribed by 14.17 times. On 4 November 2010, it opened at Rs287.75 and closed 19% higher at Rs342.35. On 3 June 2013, it made 52-week high of Rs298.91 and on 30 August 2013 it made 52-week low of Rs238.35. On Tuesday it closed 1.14% up at Rs273.90 on the BSE. As on 25 March 2014, its share price was down 19.97% compared with its closing price on its listing day.

 

MOIL Ltd

MOIL Ltd, formerly Manganese Ore India Ltd, is state-owned manganese-ore mining company headquartered in Nagpur. It got listed on 1 November 2010 at Rs551 and closed the day 15.34% down at Rs466.5. It made 52-week low of Rs182.35 on 7 August 2013 and 52-week high of Rs259.95 on 24 March 2014. Till date it has nowhere near its listing priceof Rs551. On Tuesday, MOIL closed 2.27% down at Rs247.05 on the BSE. As on 25 March 2014, its share price was down by 47.04% compared with its closing price on its listing day.

United Bank of India

United Bank of India is a state-owned lender headquartered at Kolkata. It got listed on 18 March 2010 at Rs77 and closed the day 10.65% down at Rs68.8. It made 52 week low of Rs23.40 on 21 February 2014 and made 52-week high of Rs62.95, a year ago on 18 April 2013. On Tuesday, it closed flat at Rs27.45 on the BSE. As on 25 March 2014, it was down as much as 60% compared with the closing price of its listing day. UBI was recently in the news, saddled by huge bad loans and exit of its Chairman and managing director under cloud.

Punjab & Sind Bank

Punjab & Sind Bank (P&SB) got listed on 30 December 2010 at Rs146.1 but closed the day 13.04% down at Rs127.05. It made 52 week high of Rs63.70 on 2 May 2013 and a 52-week low of Rs36.75 on 29 August 2013. On Tuesday, P&SB closed flat at Rs41.60 on the BSE. As on 25 March 2014, it was down by over 67% compared with the closing price on its listing day.

Hence, if you have followed the suggestion of the brilliant minds of MCA and ICAI, you would have made massive losses. The reason is that PSUs are badly managed – not because they have bad managers – but because they are treated as the personal fiefs by ministers and secretaries.