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Fund managers bet on India's revived privatisation

Denny Thomas

Bet on India's privatisation.

That's the advice of fund managers in India, where the embattled ruling coalition in New Delhi is seen making compromises on other reforms.

The market agrees. Shares of state-run firms, or public sector undertakings, have been the biggest gainers in 2002, fired by successful asset sales.

The Bombay Stock Exchange's PSU Index of public enterprises has leapt 76.3 per cent in 2002, dwarfing a 3.7 per cent rise in the benchmark Bombay index to Monday's close.

More gains are seen.

"Privatisation remains the biggest theme in Indian markets over the next year," said U R Bhat, chief investment officer at JF Asset Management, with $500 million invested in Indian assets.

While deadly riots in the western state of Gujarat since late February has pulled the bellwether index down 8.7 per cent, the PSU Index withstood the battering, rising 15.9 per cent.

MARUTI AND IPCL NEXT UP

"Having tasted success with some big sell-offs, the government should be able to push through more privatisations," said Hong Kong-based Ashish Goyal, who helps manage $6 billion in Asia for Prudential Asset Management.

Evidence of that came last week when a top government official said the divestment in the country's second largest petrochemicals firm, IPCL, and the biggest carmaker Maruti Udyog Ltd, were nearing fruition.

The announcement came after Bharatiya Janata Party-led government, under enormous pressure for the botched handling of the worst religious riots in a decade, watered down some tough proposals in the Union Budget.

The government has received three bids for Indian Petrochemicals Corp, including from state-run refiner Indian Oil Corp and Reliance Industries Ltd, the biggest petrochemicals producer.

For Maruti, the government and its partner Suzuki Motor Corp have reached an agreement on the price the Japanese car maker will pay to gain control of the firm.

Both the deals are likely to be completed in a few weeks.

Opposition from India's powerful trade unions and their political allies to privatisation has eased since the successful asset sales in companies such as telecoms giant Videsh Sanchar Nigam Ltd, petroleum retailer IBP Co Ltd in February.

More than a year ago, workers struck for two months in protest against the divestment in Bharat Aluminium Co before it was settled through negotiations with the new management.

ON THE ANVIL

"There is a broad political consensus on privatisation and irrespective of the political compulsions, so the process will continue," said Bahrain-based Hemant Kulkarni, who manages $80 million of India assets for Taib Bank.

Over the coming months the government plans to sell stakes in two large, profitable oil refiners -- Hindustan Petroleum Corporation and Bharat Petroleum Corporation.

Others on the divestment list include the nation's biggest shipping line, Shipping Corporation of India, and the No 2 aluminium maker, National Aluminium Co.

India, which has repeatedly failed to meet its privatisation targets in the past, plans to raise Rs 120 billion ($2.45 billion) from selling stakes in public firms in the current financial year, which ends in March 2003.

The government achieved its biggest success in the decade-old privatisation programme when it sold key stakes VSNL and IBP in February, breathing new life into the process.

Speculation is rife the government may push for stake sales in Bharat Heavy Electricals Ltd, a power equipment maker, and Mahanagar Telephone Nigam Ltd, a provider of fixed and mobile phone services, in the two most lucrative markets of New Delhi and Mumbai.

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