Public sector companies’ stock which were once the darlings of the Indian markets are now on a downward trajectory. The Nifty PSE index which tracks the performance of Indian public sector enterprises on the NSE has fallen off its all-time high and has lost over 3.8 per cent as compared to the Nifty 50’s decline of 1.5 per cent.
In the past two months, major PSE index constituents saw a profit booking. On the Nifty PSE index, from their all time high, individually, NMDC fell over 60 per cent, Steel Authority of India (SAIL) fell over 54 per cent, IRCTC fell over 27 per cent, Bharat Heavy Electricals or BHEL slipped over 24 per cent, NHPC declined over 18 per cent, Container Corporation of India and Hindustan Aeronautics or HAL declined over 16 per cent, Life Insurance of India (LIC) and Indian Oil Corporation (IOC) were down over 12 per cent, Bharat Electronics (BEL) and Power Finance Corporation (PFC) were down over 10 per cent.
Similarly, REC, Oil India, NTPC, Power Grid, ONGC, and GAIL declined between eight to three per cent from their life high.
What is dragging the public sector company stocks?
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Growing uncertainty around the upcoming state elections:
“There is growing uncertainty around the upcoming state elections which could be one of the possible reasons for the Nifty PSE pack seeing slightly higher correction than Nifty,” said Varun Saboo, Head – Equities, Anand Rathi Shares and Stock Brokers.
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PSE stocks taking a breather:
Analysts believe that there was a very sharp run in the last couple of years which could be one of the possible reasons for some breather that this space is taking and valuations readjusting.
The main reason PSE stocks ran up too much in the last two years and valuation was very high, said CA Tapan Doshi, SEBI Registered Research Analyst and Founder of Thoughtful Investors Hub (TIH).
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Shift towards value pick:
As per analysts, PSU stock investors are now shifting towards value picks, which is another reason for the decline.
What lies ahead for the PSU/PSE stocks?
Geojit’s V K Vijayakumar said, “The growth prospects of these PSU railways and defence companies are bright but the valuations of stocks in these segments have run ahead of the fundamentals.”
Meanwhile, Anand Rathi Shares and Stock Brokers’ Saboo has maintained a neutral stance on the PSE/PSU stocks.
CA Tapan Doshi believes the PSE Index to go up, but may not at the 47.3 per cent compound annual growth rate (CAGR) that it used to get in the last three years. He expects a decent return of 13 per cent to 15 per cent can be expected in the future.
Also, as per him, only PSUs with moats, having high capital efficiency, strong balance sheets, good profit, and good cash flows can sustain themselves in the future.
Additionally, CA Doshi believes that after the cease-fire talks, the Israel-Hamas conflict is expected to end which may impact Brent crude oil. This can hurt PSU oil & gas stocks which could drag the PSE Index further.
What led to a spike in the PSU/PSE stocks in the past?
The outperformance of PSU stocks happened due to different reasons.
PSU banks’ story was a remarkable turnaround from losses of Rs 87,000 crore in FY 2018 to record profits of Rs 1.4 lakh crore in FY 2024. This turned PSU banks from ‘untouchables’ to darlings of investors.
Similarly, PSU stocks of railways and defence companies got a boost from the massive spike in government capital expenditure which doubled in the last five years from around Rs 5 lakh crore to Rs 11.11 lakh crore in the last budget.
First Published: Aug 22 2024 | 12:17 PM IST
