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. 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.
The BSE Realty index-a gauge of real estate stocks-rose 4.2 per cent on Monday, extending its two-day advance to 7.8 per cent. The latest gains came on the back of robust sales posted by realty developers in the March quarter of financial year 2022-23 (Q4FY23). On Thursday, the rate-sensitive index had gained 2.9 per cent following the Reserve Bank of India's decision to pause interest rate hikes in its latest monetary policy review.
Portfolio returns, say analysts at Morgan Stanley, are more likely to be driven by bottom-up stock-picking rather than top-down macro forces.
Fundraising activity in the upcoming financial year 2022-23 may even surpass FY22 when 52 Indian companies raised a record Rs 1.11 trillion via initial public offerings (IPOs). According to a note by PRIME Database, 54 companies (including LIC) plan to raise Rs 1.4 trillion and currently hold the Securities and Exchange Board of India's (Sebi's) approval. Another 43 companies, the note said, are looking to raise about Rs 81,000 crore but waiting for Sebi nod.
However, experts caution that investors should not expect the big returns they got from the sector between March and September 2020.
This is first time in 25 years that a benchmark equity index in India is trading at a P/E multiple of 40x or higher.
The Sensex is on course to ending calendar year (CY) 2019 at a price-earnings (P/E) multiple of 29x, the highest in 25 years. Current valuations are, however, lower than those seen in the early 1990s. The Sensex has risen close to 14 per cent in the last 12 months, while the index underlying EPS dropped 6.7 per cent during the period.
Analysts caution against volatility and recommend buying stocks of companies that are on strong fundamental footing that have been beaten down badly in the recent carnage.
Stocks of public sector companies, especially the oil refining and marketing companies (OMCs) - Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL) and Indian Oil Corporation Limited (IOC) - logged gains on Tuesday in a weak market. While the Nifty lost nearly 1 per cent in trade on Tuesday, the Nifty CPSE index - a gauge of performance of central public sector enterprises on the National Stock Exchange (NSE) - gained over 3 per cent in intra-day trade. The rally in PSU stocks comes on the back of the BPCL chairman, Arun Kumar Singh suggesting in the company's annual general meeting (AGM) on Monday that the government intends to complete the divestment process in the OMC by March 2022.
Consumer stocks remain the biggest laggard on the bourses. The Nify50 weighting of FMCG stocks declined to a decade low of 9.9 per cent at the end of March this year, down 150 basis points from 11.4 per cent a year ago. At their peak in March 2013, major FMCG stocks, such as Hindustan Unilever, ITC, and Asian Paints, together accounted for 15 per cent of the Nifty50. But now together with automobile stocks, the consumer goods sector accounts for only 14.7 per cent of the index, down 200 basis points in the past 12 months and 37 per cent from the record high weighting of 23.4 per cent at the end of March 2014.
As many as 267 of 453 companies from the BSE500 index are trading above their consensus price targets, according to the data compiled by Bloomberg. Not all companies in the BSE500 index are tracked by analysts.
Auto, pharma, IT, chemicals among sectors with significant reliance on UK and European nations with Tata Motors, Motherson Sumi, Tata Steel, TCS, Wipro, Infosys and Tech M among key names.
The risk-reward ratio could turn adverse for foreign investors if corporate earnings disappoint by wide margins, or if crude oil prices spike in the international market, putting pressure on the rupee-dollar exchange rate.
Jio Financial Services, a unit of Mukesh Ambani's Reliance Industries (RIL), got valued at Rs 1.66 trillion ($20 billion) following an hour-long special trading session conducted by stock exchanges on Thursday. Shares of RIL's unit got priced at Rs 261.85 apiece - higher than analysts' expectations of Rs 134-224 per share. The price was arrived at after calculating the difference between RIL's Wednesday (July 19) close of Rs 2,840 and Rs 2,580, the price discovered during the first-of-its-kind pre-trade session.
Rs 1,000 now buys $13.5 against $14 a year ago.
The S&P BSE Small-cap index has recovered 26 per cent as compared to a 23 per cent rise in the S&P BSE Sensex.
The latest circular from BSE that sought to cap the price movement of select scrips, especially the mid-, small-cap segments, traded on the exchange is not without a reason. A quick calendar year-to-date price check on the stocks from the categories put under 'Add-on Price Band Framework' by the BSE reveals a total of 210 stocks have seen their market price more than double. Among individual stocks, SC Agrotech, Adinath Textiles, Waaree Renewable Technologies, Steel Strips Infrastructure, Unistar Multimedia, Texel Industries, Raja Bahadur International and Hindustan Everest Tools from the BSE's X and XT group have rallied over 500 per cent during this period. Topping the charts is Gita Renewable Energy, which has zoomed 3,964 per cent to Rs 272.35 now from Rs 6.7 as on December 31, 2020.
Analysts attribute this withdrawal trend to the nervousness ahead of US presidential elections and the fact that the markets raced ahead even as the economic recovery remained fragile back home.
While a little more than 140 penny stocks have doubled in value, 555 have given negative returns in the past year. Of these, 84 shed more than half their value.
Despite near-term headwinds of rising input costs and the possibility of lower demand for products as Covid dented rural & urban India, and impacts both production & consumption, analysts remain bullish on stocks of fast moving consumer goods (FMCG) companies and expect the index to relatively outperform its peers in the second half of fiscal 2021-22 (FY22). In the past one year, prices of key commodities such as groundnut oil, mustard oil, Vanaspati, soya oil, sunflower oil and palm oil have shot up in the range of 20 per cent to 60 per cent, data show. The FMCG sector macros in this backdrop, according to analysts, have further deteriorated because of weakness in consumer demand and likely margin pressure due to elevated crude oil, palm oil and global food prices.
Time opportune, with market buoyancy and entry of new entities
Analysts expect firms to shift focus to online platforms to boost sales in these Covid-19-impacted times.
Out of 11 companies that got listed in 2019, nine have outrun the market by gaining more than 10 per cent against their respective issue price.
The polls are being viewed as a run-up to the general elections scheduled for May 2019 and will test the popularity of the government and its policies amid rising crude oil prices
Index heavyweights continue to be top losers with ICICI bank.
The proposal to increase public float, hike income tax surcharge, move to tax share buybacks and lack of stimulus to shore up economic growth has hurt investor sentiment.
The surge in IT, auto and FMCG stocks were led by investors seeking safety against market volatility.
There is positive correlation between crude oil prices and Indian equities and investors can expect more upside after the recent rally in Brent crude price.
The combined profit before tax of 748 companies, which have declared their results for Q1FY21, is down 46 per cent YoY. Their net sales went down by a quarter as the Covid-19 lockdown led to a sharp fall in economic activity.
41 companies take back shares worth Rs 27,783 crore in FY17
Traditionally, most PSUs have been cash-rich, which added to their value. However, the government has been tapping regularly into their cash resources to boost revenue for the exchequer
The divestment process, however, will not be an easy affair as there are multiple stakeholders, including the employee unions, whose concerns will have to be addressed.
While sales momentum from rural areas may last another three to six months, sales growth in urban areas could stage a comeback by next year's June quarter as people learn to live with the coronavirus and economic activity gradually improves in the cities.
Valued at $71.2 billion, the bank's market capitalisation is more than that of global banks like Barclays, JP Morgan Chase and Credit Suisse.
BSE PSU index rallies 10% in one month; nearly a third of the stocks on the index has gained 20% over the period
The combined interest payment for India's top listed companies, excluding financial and oil and gas firms, was up 15.2 per cent year-on-year during the six months ended March 2019, outpacing the change in net sales and operating profit.
Further outperformance hinges on pickup in industrial activity, buying by local investors.
sharper-than-expected economic recovery back home, analysts say, can fuel a further rally in domestic cyclicals, industrials, and financials as global central banks continue with their easy money policy.
The buyback price is at around 28 per cent premium to the current market price of Rs 67 on the Bombay Stock Exchange
The trend in corporate earnings suggests that index earnings could fall to the levels last seen in early 2014.
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