In a significant decision that may have far reaching implications on stock market the government, on Wednesday, decided to allow Navranta and Miniratna Public Sector Undertakings (PSUs) to invest up to 30 per cent of their surplus cash fund only in public sector mutual funds.

This decision was taken by the Cabinet Committee on Economic Affairs (CCEA) at its meeting chaired by the Prime Minister, the Parliamentary Affairs Minister P R Dasmunshi told newspersons after the Cabinet meeting.

Surplus funds
By lifting the prohibition on investment of surplus funds by the profit making PSUs in state-controlled mutual funds the government could now influence investment in equity markets, analysts say.

“Thus through deployment of huge amount PSU surplus funds in public sector mutual funds the government could offset any possible negative impact of sudden withdrawal of funds by the Foreign Institutional Investors (FIIs), who are now investing massive funds in India’s stock market either through equities or mutual funds,” analysts said. According to rough estimates available with the government, the central PSUs have over Rs 200,000 crore surplus cash. Thirty per cent of Rs 200,000 crore would amount to Rs 60,000 crore.

Pointing out that the CCEA has prescribed certain conditions on deployment of PSU surplus funds in mutual funds, Mr Dasmunshi said, “No SPU other than Navratnas or Miniratnas would be allowed to park their funds in mutual funds.” “The approval would provide Navratna and Mini Ratna PSUs with a level playing field with private sector entities who can invest in mutual funds ,” he added.