Why public sector companies are a no-go for Shankar Sharma

Shankar Sharma says PSUs' dependence on government budgetary allocation and policies pose a risk.

Veteran investor Shankar Sharma says he steers clear of public sector companies despite them being a hot commodity. His reason: PSUs' depend on the government's budgetary allocation and policies, which are risky propositions.

The state-run companies have been on a tear this year and the Nifty PSE index has risen 40.9 percent in 2023. Shares of companies like Hindustan Aeronautics Limited (HAL) and Bharat Heavy Electricals, which are part of the index, have grown 60 percent and 56 percent year this year. The order book of HAL grew to Rs 81,800 crore by the end of FY23 on the government's "Make in India" push,  while Bharat Heavy Electricals’ order book reached Rs 91,336 crore.

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Sharma told Moneycontrol he did business with public sector companies (PSUs) and it didn't end well for his firm, as he mentioned the issue of receivables and delayed payments.

“My view is that any company that does business with the government, number one, depends on government policy, number two, on budgetary allocations. You don’t know what the next budget entails. The finance minister may say growth is not much and cut allocations. The same is the case with defence companies.” Shankar said.

“They are sensitive to government policy and that makes it a very high-risk play from my perspective.”

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High-networth individuals like him can invest in hundreds of stocks as opposed to sticking to a predefined universe of scrips which mutual fund managers are forced to do. “While mutual funds have a limitation in number of stocks they can invest, high net worth individuals like me are spoilt for choice. You have literally hundreds of companies to choose from. So I don’t need to buy what is in flavour where I’m not comfortable. I can buy things that I’m comfortable with," the ace investor said.

Sharma added he was not against taking risks, as any company would have risks. “ I don’t want to have this particular type of risk that is dealing with the Indian government," he added.

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