Today morning I had written an analysis on how global and local factors are shaping in a mini-bull run in the Indian markets. Today’s broad-based rally confirmed that trend, with Nifty gaining a further 0.65% in today’s trade. However, in this rally, there was a lot of stock-specific action that we witnessed today. The PSU stocks were in the limelight today as the Nifty Power and Nifty PSU indices increased by 2.63% and 2.18%, respectively. Bharat Heavy Electricals Ltd. (NS:BHEL) shot up by 22%, while Hindustan Copper (NS:HCPR) and Reliance Power (NS:RPOL) both were up by 20% and 18%, respectively.
So what is driving the valuation of these stocks? According to a few news reports, the government intends to conduct stake sale in PSUs is what is driving the stock prices. Despite no official confirmation on the divestment process taken up by the government, there is a high probability that the government will resort to such measures sooner than later. The reason for this initiative comes from the desire to control fiscal deficit from getting out of control, especially after the Finance Minister announced a steep corporate tax rate cut last month. In my analysis Analyzing Some of the Implications of Government’s Move on Corporate Tax Rate Cut, I had mentioned that the corporate tax rate cuts will result in ballooning of the fiscal deficit from 3.3% to 4.0% of GDP, and that the government will need to recover these losses through other means, which includes taking divestment options. Hence, today’s up move in the PSU stocks didn’t come as a surprise to me.
Elsewhere, Yes Bank (NS:YESB) had a nice run-up as the stock made smart gains not just today but also yesterday. The stock has gained by 25% in the last two trading sessions on the rumor that Bharti Airtel Ltd. (NS:BRTI) founder and Chairman Sunil Mittal and Hero Group’s founder Sunil Munjal could acquire a stake in Yes Bank. On the other hand, Zee Entertainment Enterprises Ltd. (NS:ZEE) stock fell by 6%, possibly because of the slower than expected ad revenue growth and a one-time loss of Rs. 170 crore in the September ending quarter.