BHEL DIS-INVESTMENENT

Today BHEL released its quarterly and annual results and the stock fell 7%. The market reacted sharply to the results(at-least that was I thought initially). I was confused on the reaction as the results were largely in line with the provisional numbers. I kept reading the other pages of the press release, which had three three things worthy mentioning

1. The company had changed accounting policies which had led to higher profits and revenues
2. Stock split, from FV of 10 to FV of 2.
3. Disinvestment of 5% stake by the government.

Initially after reading and re-reading i could not make sense as to what led to this dramatic a fall in the share price of this big a company. I mean 7% in a day for a large cap should be a black swan event.

I will talk about each point now

1. The company had changed accounting policy in Q2-Q3, so it was not a surprise.
2. Stock split!!! That is generally considered a news to cheer on. There are numerous examples where stock split news has led to stocks being locked in upper circuits. Crazy as it may be, it happens. As behavior analysts put it, people feel more wealthy if they see they own 1000 shares @ 50 as compared to 200 shares @ 250. Anyways that could also have not led to the decline in price.
3. Disinvestment, is it not a good news? I mean on Feb 28,2011 the news of disinvestment led to the PSU index going up 3% as against the sensex rise of only 1%.I dont see anything wrong with disinvestment, somebody wants to sell his stake to raise money, what difference does it make if it is some hedge fund or the government of India and neither do i see anything wrong with offering retail clients a discount of 5% which helps in attracing more investors. I would have never applied to Power Grid IPO had I not got the 5% discount, it does help in broad basing the investor base.

So none of the reason appear justified to warrant such a fall. I was reading one article which said that disinvestment caps the upside movement.I would totally agree, but i need empirical proof of the same, so let us take cues from other disinvestments that the government has done so far in this fiscal in order to see is our view correct

Company Name	Price Band	Issue opens	Issue Closes	Date of announcement	Price on announcement	Price on Issue opening date	Price band and announcement day price differential
Power Finance	193-203	10/05/2011	13/05/2011	10/02/2011	251.95	215.85	-19%
Shipping Corp	135-140	30/11/2010	03/12/2010	5/10/2010	168.1	143.75	-17%
Power Grid	85-90	09/11/2010	12/11/2010	22/07/2010	101.45	99.6	-11%

So we can see the disinvestment has not really gone down well with the markets. Disinvestment is not such a good thing after all as the govt. fixed price is generally 10-20% lower than the price on the announcement date and hence the fall in anticipation of the same.