Normally the public sector units trade at a lower price earning multiple (p/e multiple for those who did not understand the full version).
This is largely because there is a general feeling that the owner (manager) does not care too much about the main shareholder. To expect the ‘corrupt’ or ‘indifferent’ employee to work for the shareholder is so darn difficult, it is not funny.
I have met many psu managers who are passionate about the companies for which they work, but frankly they do not care about their shareholders. Yes it takes a FII to tell Coal India to take care of the shareholder interest, but that is not enough. The small unorganized, shareholder stands very little chance of getting any justice.
How bad is it in the private sector? A lot better. Many managements know that if you do not treat the shareholder well, you cannot go back to the market again and again. They also know that a good market price protects them from being taken over – psu companies do not have this worry.
Psu companies do not have this threat. So they can do whatever they want and will surely raise money whenever they need. The bad behaviour on PSU does create a problem – not just for the company itself but for the whole industry…so frankly ONE psu does not even think its own behaviour is important in its life.
How does the market react to all this? generally by giving it a lower p/e…..
Source:Subramoney.com