InvestorQ : What do you suggest on Indian Oil Corp? Now that the government is selling it is stake in the company, can I buy the stock for long term?
Ria Jain made post

What do you suggest on Indian Oil Corp? Now that the government is selling it is stake in the company, can I buy the stock for long term?

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Anu Biswas answered.
2 years ago
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You are right that the government of India is planning to reduce its stake in Indian Oil Corp. to below 51%. However, the government will still retain indirect control over IOCL through the state-run companies like LIC and ONGC, which will have large stakes in the company and possibly even a majority stake. So government decision making influence will continue.

The cabinet will consider this proposal as early as next week to sell shares in a number of companies, including Indian Oil, to below 51%. Currently, the government directly holds 51.%5 in IOCL and another 25.9% through other state owned companies like the Life Insurance Corp. of India, Oil and Natural Gas Corporation as well as Oil India Ltd. In short, the government majority ownership will continue, albeit indirectly. What it will help is in the government bridging its deficit on the disinvestment target for the current fiscal.

Actually, government does not have much of a choice. The government in its budget had targeted to raise a record Rs.105,000 crore ($14.6 billion) through asset sales in the financial year through March 2020. However, with direct taxes and indirect taxes like GST showing serious slippage, the government cannot afford to go lax on disinvestment revenues. A slippage will put the government's goal of capping budget deficit at 3.3% of gross domestic product at serious risk. A higher fiscal deficit will also mean that rating agencies may downgrade the ratings; something India cannot afford at this point of time. Currently, the situation is that the government can sell up to 26.4% of its holdings in Indian Oil (this has a current market value of Rs.33,000 crore) and still retain indirect control.

However, this may not really enthuse the market too much as this is more by way of disinvestment and the markets are actually looking for privatization of PSUs. While IOCL is still a good dividend yield play, you must not expect too much from this company in terms of capital appreciation. That should be your strategy.

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