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IRFC, NBCC, SJVN, BHEL: PSU stocks are on fire; analysts see more headroom

February 15, 2024 14:38 IST

Stocks of public sector undertakings (PSUs) have been on fire in the past year as investors cheered an improvement in key operating metrics and embraced counters of these state-owned enterprises, analysts suggest.


Illustration: Dominic Xavier/

The S&P BSE PSU Index has gained over 90 per cent in the past year, rising much higher than the S&P BSE Sensex, which has rose nearly 19 per cent during this period, according to ACE Equity data.

The BSE PSU Index, reports show, has delivered a compound annual growth rate (CAGR) of 28 per cent (including dividends reinvestments) over five years and risen by almost 60 per cent in the past year.


In comparison, the National Stock Exchange Nifty50 posted a CAGR of 16.7 per cent and 20.5 per cent during similar periods.

The prevailing perception, said analysts at DSP Mutual Fund (MF), attributes this success to a clear government mandate and a hands-off management strategy.

However, underlying data, they add, suggests that the operating performance of PSUs already indicated a turnaround.

Should these PSU entities sustain efficient operations, they expect a continued trend of outperformance due to increased business opportunities.

Typically, substantial rerating occurs when the return on equity exceeds the cost of capital.

Hence, it s not surprising that stock performance for PSUs surpassed the underlying profit growth for these companies.

While initially cautious about significantly increasing our exposure to PSUs, recent data indicating improvements in operating performance has led us to augment our holdings in PSU companies, wrote Vinit Sambre, Rohit Singhania, and Souvik Saha of DSP MF in a recent note.

At the bourses, among stocks that comprise the BSE PSU Index, shares of Indian Railway Finance Corporation zoomed over 400 per cent to Rs 160 levels.

NBCC (India), SJVN, Housing and Urban Development Corporation, REC, Ircon International, Power Finance Corporation, Bharat Heavy Electricals, MMTC, Punjab & Sind Bank, and Indian Overseas Bank are some of the other stocks in this index that have surged 150 350 per cent, shows data.

A large number of these PSU stocks, suggests Chokkalingam G, head of research at Equinomics, are from the smallcap segment that has seen a good run in the past year.

Although one cannot paint the entire PSU sector with the same brush, it is advisable to remain selective and avoid pockets where stock prices have run up sharply.

PSU stocks should do well in the medium-to-long term if there is policy continuity after the general election outcome,  Chokkalingam said.

Privatisation theme

Analysts at Kotak Securities, too, caution against the rich valuations of select PSU stocks and suggest investors take an informed decision, especially when the much-anticipated privatisation trigger of select PSUs may not come through.

We rule out privatisation of most of the larger PSUs given the stated policy of the government to retain control over one or more PSUs in a strategic sector.

Valuations of most PSUs have expanded sharply over the past few months, which may reduce the interest of potential bidders, wrote Sanjeev Prasad, co-head of Kotak Institutional Equities, in a recent note co-authored with Anindya Bhowmik and Sunita Baldawa.

Meanwhile, under its New Public Sector Enterprises Policy of February 2021, the government has classified certain sectors as strategic for national security, energy security, critical infrastructure, etc.

These four broad sectors include atomic energy, space, and defence; banking, financial services and insurance; power, petroleum, coal, and other minerals; and transport and communication.

Networth of  PSUs now more than Rs 17 trn: PM

While replying to the Motion of Thanks to the President's address in the Rajya Sabha, Prime Minister Narendra Modi observed that public sector undertaking (PSU) shares are giving good returns now.

People's confidence is improving in PSU shares, he said while speaking about his government s performance since 2014.

The networth of PSUs is now more than Rs 17 trillion as against Rs 9.5 trillion in 2014, he said.

In 2014, there were 234 PSUs and after 10 years, we have 254 PSUs; their profits have risen to Rs 2.5 trillion,  he said.

I was born in Independent India and my dreams are independent.

Congress said we sold PSUs and destroyed them.

I want to ask them who destroyed Bharat Sanchar Nigam (BSNL) and MTNL.

Recall the state of Hindustan Aeronautics (HAL) under Congress.

They destroyed HAL and Air India.

Congress party and the United Progressive Alliance cannot run away from their failures.

Today, the BSNL that you destroyed is moving towards Made in India 4G and 5G. HAL shows record revenue generation and has become Asia s largest helicopter manufacturing factory.

"We have turned around the story. Today, Life Insurance Corporation of India s shares are breaking records," said Modi.

Congress General Secretary (Communication) Jairam Ramesh claimed PSUs, including Rourkela Steel Plant (RSP) created by the previous Congress governments, are in  danger as Modi is busy selling these units.

Ramesh, who is accompanying party leader Rahul Gandhi in his Bharat Jodo Nyay Yatra that reached Rajgangpur in Odisha s Sundergarh district, said this at a press conference.

Pandit Nehru created many public sectors in the country, but all of them are in danger today.

Modi is busy selling these PSUs created by Congress, to his friends, but the Congress party will oppose it,  he said.

Stating that Rourkela holds special importance in the economic history of our country, Ramesh said the Congress government had set up major projects like RSP, National Aluminium Company, NTPC and other such projects in Odisha and all of them are  not safe  because of the Bharatiya Janata Party's policies.

The country's big PSUs including rail, Steel Authority of India, ports, airports and others created by Congress are being sold today due to Modi's mitra niti  (friendship policy).

Our priority is to create a new economic model for small industries by reforming goods and services tax, stopping blind privatisation, reviving PSUs, and filling vacant government posts.

This vision of Congress can generate employment in the entire country, including Odisha, Ramesh said.

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Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

Puneet Wadhwa
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