As share prices of many public sector undertakings (PSU) have seen some selling in recent weeks, market veteran Madhu Kela does not believe it is a big concern as the larger PSU story is intact.
“The economy is doing well and public spending remains strong and the government’s push to strengthen public sector companies and allow them to work independently is helping them reform and perform well,” Kela told Moneycontrol.
The value investor, who has been rallying behind PSU stocks for quite some time, believes some pockets are overvalued and the correction is a good sign.
“The correction is neither surprising nor unwarranted,” said Kela. “Will have to wait and see where individual stocks stabilise. Buying will emerge wherever there is valuation comfort.”
The selling has intensified in the last three sessions. In the period, valuations of PSU stocks have reduced by Rs 6.4 lakh crore. Top wealth-eroding stocks in the last three sessions include Life Insurance Corp of India and Indian Railway Finance Co, each losing around Rs 41,000 crore in market cap.
Following closely are Indian Oil Corp Ltd and NHPC, shedding about Rs 25,000 crore each in market cap. NTPC Ltd and ONGC also saw declines of approximately Rs 20,500 crore each in market cap over the same period.
PSU stocks have been on an upward trend since 2021, with the BSE PSU index experiencing gains for the third consecutive year: 41 percent in 2021, 23 percent in 2022, and 55 percent in 2023.
Earlier in the month, Kela said he saw value in some PSU oil companies.
“I obviously feel in the short term there is a little bit of valuation discomfort in railway and even in select defence stocks. But I think there is still value in some pockets in the PSU segment... and if they truly come and divest even two or three companies in the next 12 months, then obviously, we will all change our opinion, including me, and we'll start looking at PSU companies from a different lens,” he said.
Kela remains a big believer in PSU banks, which he believes are much better positioned compared to their private peers.
“All the worries related to PSBs on governance, technology and credit costs have diminished as they have become as good as any other private banks. So in terms of valuation, I still think there is some value for them,” said Kela.
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