Indian Railway Finance Corporation (NSE: IRFC) shares are up 10% today. This is the limit they’re allowed to move in any one day so it is a significant move. As we’ve pointed out before IRFC is going through a revaluation as a result of the government thinking about selling more stock. Yes, we know, more stock hitting the market isn’t usually a prelude to a rising share price but things can be different when it’s the government offloading a stake.
As we’ve said about IRFC: “As to why the recent rise, there is that thought that government will sell off a further piece of the company. Actual announcements, or rumours, of sales seem to lead to drops in the share price. But actually having 25% of the stock out there in the markets would increase the pressure to be running upon entirely commercial lines. It could be this boosting the IRFC share price - less government ownership leading to the company running less like government.”
News for those who think that governments should be running more of the economy. Here we’ve the market’s view which is that if government is less involved then the business is worth more - that’s not a vote of confidence in government ability to run things.
Indian Railway Finance Corporation share price from Google Finance
As we’ve also said about Indian Railway Finance: “However, it's worth having a look at the background here. The Indian Railways are really an arm of government. As well as being the country's largest employer. The two go together - the Indian railways are grossly inefficient. IRFC is a part of this system - the government owns 86% of the shares. IRFC was set up in order to bring some size and efficiency to the financing of the railway system. By having the one centralised body dealing with bond and equity markets perhaps it would be possible to have more efficient financing? The reason for an issuance of stock in such a body is to provide visibility on that efficiency. A public company - publicly quoted that is - has to prepare accounts on a more open basis than government itself does.”
As we say, lower that government involvement, increase transparency and perhaps even performance. Thus the ongoing revelation of IRFC as the implication of that potential government sale sinks in.
We would also suggest - suggest only - that this is one of those things where it’s buy the rumour, sell the fact. It’s possible that a little too much hope is being built into the IRFC share price right now. When the actual sale comes through there might well be a pullback as reality proves to be not quite as interesting as the dreams.