Shares of at least 14 PSUs are in the bear grip, falling over 20 per cent from their 52-week high levels, as investors wonder whether the PSU rally has peaked. Analysts said one should not paint all PSUs with the same brush, saying their still remain pockets of buying opportunities, but one needs to be very selective as valuations are no more reasonable following the recent rally.
Rail Vikas Nigam Ltd, SJVN Ltd, NBCC (India) Ltd, Rashtriya Chemicals and Fertilizers Ltd (RCF), Indian Railway Finance Corporation Ltd (IRCTC), ITI Ltd, MMTC Ltd, Mishra Dhatu Nigam Ltd (Midhani), NLC India Ltd and Ircon International Ltd are some of the names seeing heavy selling pressure of late. Others included Indian Overseas Bank, KIOCL, NHPC and General Insurance Corporation of India (GIC RE).
"Even a good government company but a high valuation is not a good stock. Therefore, too much debate on government or non-government is unwarranted. We like certain businesses, where PSUs have specific moats and competencies. For example, in the power utility sector, the borrowing cost is an advantage; in large banks, the liability franchise is an advantage. We only buy such names if the business has both moats and is at a reasonable valuation," said Neelesh Surana, CIO at Mirae Asset Investment Managers.
Shares of Rail Vikas Nigam are down 31 per cent from their 52-week high of Rs 345.60 hit on January 23. SJVN tanked 30 per cent from its February 5 high of Rs 170.45. NBCC India, whose shares also hit 52-week high on February 5, has fallen 28 per cent. RCF, IRCTC, ITI and MMTC are four stocks which have dropped 25 per cent or higher. Midhani, NLC India Ltd, Ircon International Ltd, Indian Overseas Bank, KIOCL, NHPC and GIC RE declined 20-25 per cent.
Surana of Mirae Asset Investment Managers said three years ago, public sector undertakings as a basket in general were cheap, primarily as they were in basic industries, and there was also a constant supply via follow-on issues. "Stock valuations are not as cheap now, and thus many other filters need to be applied. This is true not only for government companies but also for the overall markets, and it's much more stock-specific now, including for PSUs," he said.
Kotak Institutional Equities in a recent strategy note said that the PSU outperformance was largely driven by improved fundamentals in a few cases, strong narratives in many cases and possibly low free-float in several cases.
Kotak said most PSU outperformers have seen little-to-no upgrades to their FY25 and FY26 EPS estimates.
"Further, the few cases of earnings upgrades stem from non-sustainable factors, such as benign government policy on pricing of retail automotive fuels in the case of the downstream oil PSUs. We are not sure if these PSUs will see meaningful earnings upgrades over the coming 12-24 months, which can justify the sharp run-up in their stock prices over the past six months," Kotak said.
Bernstein in a note last month said it finds only limited opportunities within PSU portfolio, the ones which are high momentum or dividend yielding stocks with reasonable valuations. "However, we would argue against chasing high vol PSU stocks or the ones which are simply value," it said.