Public sector companies have been buzzing on Dalal Street due to their superlative performance in the ongoing calendar year. The BSE PSU index has gained 13.32 per cent on a year-to-date (YTD) basis till September 22. On the other hand, the benchmark BSE Sensex has advanced just 1.49 per cent during the same period. In an interaction with Business Today, Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services (MOFSL), said that rising share of PSUs in the profit pool and the dearth of cheap valuation made them attractive.
Data showed that PSU banks, defence, shipping and power stocks were among the main drivers of the BSE PSU index. While sharing his views on these sectors, Khemka added that sharp improvement in the PSU banks’ profitability and asset quality has led to rerating in them.
Defence stocks have rallied the most, post the government’s focus on reducing its dependency on defence imports with the help of initiatives like ‘Make In India’ and ‘Atmanirbhar Bharat’.
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“Rising electricity demand, Government of India’s focus on electricity for all and shift towards renewable energy has brought the limelight back on power stocks. Apart from these, the government’s focus on divestment also kept PSUs buzzing on D-Street,” the market analysts said, adding the PSU space may continue to stay in focus as the government expects to raise Rs 65,000 crore through disinvestment or privatisation of PSUs in the ongoing financial year.
He further explained that share of PSUs in the MOFSL profit pool has expanded to 30.7 per cent in FY22 after hovering in the range of 19-27 per cent over the past few years. In fact, PSU corporates’ profit after tax has surged 2.3 times over FY17-22, reporting a CAGR of 18.2 per cent against the private sector CAGR of 12.3 per cent.
Considering the present market condition, the market watcher is bullish on State Bank of India (SBI), Bank of Baroda and Canara Bank in the PSU banking space. Shares of Bank of Baroda have gained nearly 69 per cent YTD, while Canara Bank and SBI also rallied 22 per cent and 23 per cent, respectively, during the same period.
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Khemka is also positive about Coal India which is benefitting from the energy crisis in Europe. He also believes that the recently released National Logistics Policy which would benefit Container Corporation of India. “In the defence theme, we prefer Bharat Electronics which benefits from higher indigenisation while Hindustan Aeronautics order book is bulging with recent large orders to make Tejas aircraft,” Khemka said.