Divestment: A gift from the government?3 min read 31 Oct 2014, 09:25 AM IST
How should an investor react to the government's selling stake in public sector companies
Beware of governments bearing gifts is accepted wisdom. After all, being responsible for one of the two unpleasant certainties of life does dent people’s enthusiasm. However, there is one area where governments do bestow gifts, and no we’re not talking about boring topics of welfare and subsidies. Investors are unlikely recipients of government largesse through privatization programmes. The world over, sale of public sector enterprises (PSEs) usually increase the wealth of private investors. This is primarily through two means. The first is because the government’s lack of financial acumen usually leads to sales at a discount to what the market is prepared to pay. Second, after privatization, there is usually a greater management focus on shareholder value enhancement that benefits investors (or so the theory goes).