'Divestment will be a driver f

How would you explain the valuation gap that exists between PSU stocks and the rest of the market?

There are a lot of issues. There is a perception issue such as in banks and there are regulation issues such as in oil, where a large PSU oil company is trading at a discount because it bears the burden of subsidies. A lot of things have to happen for that inflection point to be reached. We are NFL-Hats hoping it will happen and there are indications that it should.

Do you have a timeframe in mind?

It is very difficult to say. In 2000, I was on the sell side and was covering oil then. We did a report before the deregulation happened on oil. We were one of the first ones to come out with a report that said 'this is how the deregulation will happen.' It happened in a year or two, but then regulation was brought in again.

What about sectors other than oil where PSUs are present?

There are companies in other sectors who are doing well such as in capital goods. So it can be a stock-specific issue as well. Sectors such as banks face some perception issues, with many of them facing difficulties since they are seen as PSUs. This might not always be fair. Let me explain... are you married?

No.

Then you won't understand. Jiski shadi hua hain, biwi hamesha gaali deti hain. 'You don't do this or that.' Actually, the husband does a good job...

So you are the investor and the husband is the PSU. Generally, people say (disdainfully) 'It's a PSU,' when actually they have done a good job. They have generated good returns, balance sheets are good, return on capital is good. But the general perception is that 'it's a PSU.' So that will change.

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Plus, the float factor is a big factor. As they keep divesting, the floats will increase. India is a top-down market, and automatically, people will start investing in these companies. A majority of the foreign institutional investor money is benchmark driven, which is a big driver of markets. The free float weightage for PSU stocks in the BSE 100 is 17% whereas the market cap weightage is 33%. As and when there is additional disinvestment, these numbers will converge.

Any particular segment in the PSU space that you think offers more value than others?

Banks, power, oil selectively, depending on the reforms.

When do you expect to see something like that coming in?

No idea. I think the intention is clearly there, but there are issues. Once those get cleared, reforms should happen.

Would you look to invest the money you collect into the currently listed PSUs or would you be eyeing the Rs 40,000 crore of divestments that are being targeted this fiscal?

We'll invest in both. We'll deploy the money, we don't hold cash. We believe in generating excess returns through stock selection rather than holding cash and timing the market.

You mentioned your fund will have around 30 stocks, what's the idea behind that as most funds have a bigger basket for diversification?

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I think 30 stocks offer sufficient diversification. You have to get it right in terms stock selection if you hold a small number.

There could be greater volatility as a result. But, India is an alpha market, it is no
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