While the government has managed to do damage control, the IRCTC convenience fee controversy could weigh on investor sentiment towards the PSU pack—most of whom already trade at a significant discount to their private sector peers.
On Thursday post-market hours, IRCTC in an exchange filing said that it has been asked to share half its convenience fee with the railway ministry. Investors panned the decision, and the stock tanked 29 per cent intraday on Friday and led to market cap erosion of over Rs 20,000 crore.
However, the government rolled back its decision, and the stock recouped most of its losses.
Despite the government’s swift action, analysts said that the whole controversy could weigh on investors’ minds while making future investment decisions vis-a-vis PSUs.
“It throws up many questions. We have seen in the past that PSU stocks are vulnerable to the whims of some bureaucrat sitting in Delhi who may or may not be aware of these decisions on the equity markets. However, the swiftness with which the government acted after the stock corrected sharply is also a first,’ said Alok Churiwala, MD, Churiwala Securities.
Moreover, market participants felt that the government is not subjecting itself to the corporate governance standards and minority shareholder norms that the private sector is expected to follow.
“The revenue-sharing fiasco will weigh on the stock and the PSU base because we don’t know what other decisions can come like this. The damage to the sentiment has been done. Many retail investors would have lost big money,’ said Ambarresh Baliga, an independent analyst.
Experts say regulatory and policy uncertainty remain the biggest risk factors when it comes to investing in PSU stocks. Also, continuous dilution by the government to meet its disinvestment targets causes oversupply in the market, depressing the stock prices.
Analysts said that the IRCTC controversy is the latest example highlighting minimal safeguards for minority shareholders. Some other instances where investors have got caught on the wrong foot include cross shareholding (making one PSU to buy government stake in other PSUs), draining of cash or asking PSUs to borrow to increase dividend payout and selling shares at a huge discount to the market rate in the offer for sale (OFS).
Analysts said that the government’s decisions have led to the loss of market value of PSUs and said some consultation process has to be evolved when it comes to policy decisions regarding listed PSUs.
“Look at a stock like Coal India. The reason for the stock to crack so much is that we do not know when the next OFS. The oil marketing companies are supposed to fix diesel and petrol prices, but what happens to that independence during elections? Barring a few, most of the PSU pack has been languishing. They started moving up because people started doing relative valuation comfort. These decisions can affect that sentiment,” said Baliga.
On October 19, IRCTC’s market cap had even briefly crossed Rs one trillion.
The convenience fee controversy is a good example of how stock value can erode overnight.
“A sureshot money-spinner can turn into a nightmare,” said Churiwala.