The ongoing rally in the PSU stocks grabbed everyone’s attention on Dalal Street in the ongoing calendar year, thanks to attractive valuation and the government’s focus towards the sector. Data shows that as many as six public state-owned companies rallied more than 100 per cent on a year-to-date (YTD) basis till December 2, while 23 firms advanced somewhere between 27 per cent and 90 per cent.
With a rally of 227 per cent, Mazagon Dock Shipbuilders emerged as the top gainer in the list. Shares of the company jumped to Rs 914.10 on December 2, 2022 from Rs 278.90 on December 31 last year. Bharat Dynamics, Hindustan Aeronautics, Rail Vikas Nigam, Bank of Baroda and Indian Bank also gained over 100 per cent during the same period.
So what kept the momentum upbeat?
Rahul Sharma, market strategist and head of research, Equity99 said, “The government’s vow to enhance manufacturing locally through production-linked (PLI) incentives supported defence stock. The higher outlay in infrastructure and subsidy for fertilisers also kept the sentiment high for select PSU stocks. On the banking front, the major relief is coming from an improvement in non-performing assets (NPA), corporate loan book and operating performance which leads to healthy growth in the book numbers.”
Other top gainers
Union Bank Of India (up 89 per cent), Cochin Shipyard (up 86 per cent), Bank Of India (up 65 per cent), Rashtriya Chemicals and Fertilizers (up 62 per cent), Canara Bank (up 60 per cent), UCO Bank (up 56 per cent), Coal India (up 55 per cent), Bharat Heavy Electricals (up 54 per cent), Bharat Electronics (up 52 per cent) and Indian Railway Finance Corporation (up 51 per cent) stood among other major gainers in the PSU space in 2022 till date.
Outlook
Going ahead market watchers believe that the coming budget will create a path ahead for the sector. Sharma of Equity99 believes that the defence sector is still looking attractive right now. “Atmanirbhar in defence, which promotes local arms production and capital allocation for domestic procurement boosting the industry. Also, increased arms exports from India, are further improving market sentiment this year.”
On the other hand, G Chokkalingam, Founder, Equinomics Research and Advisory said, “2023 would be stock specific within PSU space. Growth opportunities for specific business models and possible strategic sale of equity by the government would drive the rally. For instance, the possibility of strategic sale of PSUs engaged in metals and logistics could participate in the rally.”
Some of the metal players including National Aluminium, Steel Authority of India and Hindustan Copper retreated between 4 per cent and 23 per cent YTD in 2022. On the other hand, oil and gas players such as BPCL, HPCL and Gujarat Gas also lost 12 per cent, 21 per cent and 19 per cent, respectively, in 2022 till December 2.
Chokkalingam believes that metals and logistic PSUs couldn’t participate in the rally so far. “They look very attractive now. Most industrial houses are expanding their logistics business. They could like at acquiring considerable stakes in these PSUs from the government. As the global economy is expected to improve its growth from mid-2023, the metal sector especially copper and aluminium could improve their prices substantially early next year. Hence metal PSUs look attractive now,” he said, adding one could avoid oil and gas PSUs as both steep rise and fall would be negative for them.
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