The Cabinet Committee on Economic Affairs will discuss the proposal to lift the ban on state-owned companies from investing in mutual funds in its weekly meeting on Thursday.
This opens significant opportunities for cash-rich public sector units to earn higher returns and provide a fillip to the stock-markets. Mutual funds account for less than 1 per cent of total stock market investment.
According to data compiled by the Business Standard Research Bureau, the 78 listed public sector units had reserves worth Rs 3,04,292 crore (Rs 3,042.92 billion) at the end of March, 2006. Oil and Natural Gas Corporation with reserves of Rs 52,534 crore (Rs 525.34 billion) topped the list.
"This is an important income-earning opportunity for state companies. So far, we have the option to invest in short-term and long-term bank or FI deposits and tax-free Reserve Bank of India bonds. Around a year back, we were also allowed to invest in treasury bills," said a director (finance) of a leading power PSU.
The move will benefit PSUs with retail businesses that receive sizeable cash in advance. "It could mean a lot, as we get 10 per cent return on a bank deposit. It depends on the choice of the mutual fund. If we can be assured returns of about 15 per cent, it would mean a lot for the company in terms of revenue," said the director of a government-owned oil company.
This is the second recent move by the government to strengthen PSUs. A month ago, it allowed the chairmen of such companies a role in the appointment of independent directors, also allowing them greater flexibility to make investment and operational decisions.
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