Public Sector vs Private Sector Companies
In the stock market, public sector companies are generally not considered to be “growth” stocks, and their historical trends tell the same story: they don’t rise in price as quickly as private sector companies like Reliance or HDFC Bank. But they do pay considerable dividends, something not many private sector companies do.
Before talking about the differences between these two types of companies, let’s first define them. Public sector companies are owned either partially or wholly by the government and generally, they would like to remain in control of these companies through a majority stake. The companies can be owned by state-owned institutions, government agencies and many other types of public service institutions.
Private sector companies on the other hand are owned and controlled by either individuals or business groups. Profit is of utmost importance. Since the Indian economy opened to the world in 1991, other than some industries like defence, atomic energy and railways, private sector companies have been allowed to engage in all other industries.
So what are the major differences apart from ownership?
The main motive of the public sector is said to be providing services to help the general populous. And while they also need to make profits, they may make adjustments to prices or services to meet that end goal. The private sector, however, wants to earn as much profit for their shareholders for their shareholders as possible. And this is not an evil thing, the growth of our companies boosts our economy both directly and indirectly.
Public sector companies typically raise funds using public revenues like taxes, bonds, treasury bills, etc., though they can also go for IPOs and FPOs. Private sector companies can’t tap into public funds, they need to raise money using loans, share sales, debentures, etc.
The general consensus is that jobs with public sector companies are safer since they also want to foster employment in the country while private sector companies are under no obligation to do so, they want to maximize profits and would only want to keep employees who perform.
Generally, public sector companies are expected to be less profitable on a percentage basis than their private sector peers because of their focus on serving the people along with profits, not just the latter. So if you wanted to invest in some companies, you might want to look into that.
Do you know of any more differences between the two that I missed? Do let me know. And if you enjoyed this article, you can read more from me here. And do let me know if you want a specific topic covered. Subscribe for free to receive more posts like this every day!