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Select PSUs allowed mutual entry

New Delhi, July 26: The cabinet committee on economic affairs today allowed certain PSUs to invest up to 30 per cent of their cash reserves in mutual funds. The move is likely to boost stock markets which are currently in the grip of a bull run that has seen the sensex crossing 15700.

However, these public sector units can invest only in state-run mutual funds. The approval is for the 12 navratnas and the 48 mini ratnas which have reserves of more than Rs 150,000 crore.

Officials said the top five PSUs in terms of reserves were the Oil and Natural Gas Corporation (ONGC), the National Thermal Power Corporation, the Indian Oil Corporation, Mahanagar Telecom Nigam Limited and GAIL (India) Limited.

ONGC has the highest reserves at Rs 52,500 crore.

Investment guidelines will be decided by the boards of the PSUs in consultation with their administrative ministries.

Brokers said the move would accelerate the bull run in the markets, though not immediately.

“It brings a new class of investors into the market. It will, to an extent, be beneficial to the markets,” said an analyst with a foreign brokerage.

The finance ministry, which masterminded the move, wanted PSUs to have the freedom in the choice of funds. This would have made both state-owned and private funds eligible for investments.

Sources said some ministers, apprehending Left opposition, cautioned against the move.

As a compromise, it was decided to allow only state-owned funds to compete for the business initially, leaving the door open for a possible entry of private funds later.

For some time now, PSUs have been seeking greater freedom in the deployment of funds to earn more from their savings.

PSUs are keen to cash in on the stock market boom that has helped treasuries of private sector rivals post good profits.

The department of public sector enterprises then came up with a plan to allow PSUs to invest in public sector mutual funds up to 10 per cent of their reserves.

However, the finance ministry had sought to keep the ceiling flexible. Eventually the compromise was to fix the upper limit at 30 per cent.

More liberal suggestions such as letting PSUs play the stock market with their reserves or hiring specialised asset management firms for this purpose have already been shot down by the government, mainly because of the risks associated with such an enterprise.

Not only are financial risks involved, but the bad publicity from the losses because of a stock market crash could pose a problem.

PSUs now park their savings in government bonds, state-run banks and corporate paper issued by other government entities.

A liberalisation of the investment portfolio will help the PSUs earn more, while giving an impetus to stock markets.

Selloff white paper

The much delayed status report on divestment during the previous NDA government will be tabled in Parliament in the coming monsoon session.

The white paper on divestment, in the making since the UPA government took over in 2004, will finally be tabled after a sustained pressure from the parliamentary standing committee on finance.

“The standing committee on finance has been repeatedly insisting on the government to place a white paper in Parliament on divestment. It is nothing but a chronological development of the entire scenario of divestment since 1999. It does not mean we are changing policy,” information and broadcasting minister Priya Ranjan Das Munshi told reporters after the cabinet meeting that cleared the paper.

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