BackHow recent surprise for IRCTC investors acts as a reminder for investing in PSU stocks
IRCTC share price plunged 25% on the BSE in Friday's early deals as govt has asked the company to share half of its convenience fee
PremiumIn what has come as a negative surprise for the investors of IRCTC, the government has asked the Indian Railways' online ticketing arm to share half of its convenience fee from internet booking with it. IRCTC has been asked to share 50% of its revenue earned as convenience fee from bookings on its website with Railways Ministry, an arrangement that had been discontinued since the pandemic.
"Government asking IRCTC to share 50% convenience fee with the Railway Ministry is yet another instance which should warn investors of undue optimism while investing in PSU stocks. Enhancing shareholder return is not the objective of PSUs. So investors have to be careful while chasing PSU stocks, even if they are cheap," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Convenience fees charged from customers generated a sizable revenue for both IRCTC and the Railways. The fee is not part of the rail fare. It is for the service of online ticket booking offered by the IRCTC.
"This decision creates a huge dent in confidence for investors in PSU entities as this reflects uncertainty in business continuity for such companies. In times when the Government is trying to sell its holdings in public enterprises, this news will dampen the sentiments of investors and will have a larger impact on the market cap of these companies in relation to the additional revenue share from sharing convenience fee," said Divam Sharma, Co-founder of Green Portfolio, SEBI registered Portfolio Management Services.
IRCTC share price tanked to 25% lower circuit in Friday's early deals to ₹685 apiece on the BSE. Analysts believe that it will be difficult to gain previous valuations for IRCTC because investors will always have risk factor in their backup of mind.
“It is a big negative surprise for the investors of IRCTC. It will lead to an accident in the share of IRCTC but also pull the chain of momentum in the other PSU stocks," said Santosh Meena, Head of Research, Swastika Investmart.
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