Positive on power stocks but not on public-sector as a whole, says S Naren

Naren said that the experience of other countries shows that whenever there were big corrections, it was because of badly managed macros.

While the PSU rally has not ended, we have reached a stage where one needs to be more selective about the stocks we pick within the sector, said ICICI Prudential Mutual Fund’s CIO, S Naren. Currently, for example, ICICI Prudential is positive on many of the PSUs within the power sector because not enough capacity is coming up in the power sector for the next two to three years. Power generation companies like NHPC, NTPC and Power Grid have run up by around 18 percent, 36 percent and 26 percent over the past year. “Power generation companies are very few, so they will do well for the next two to three years, because there is virtually no capacity at this point," Naren said.

Also watch: Live: 'Real Estate Overvalued, Be Selective Among PSU Stocks': S Naren's view on Samvat 2080 

Over the last one year, PSU power lender stocks such as REC and PFC have seen double digit gains.

While Naren  says that they are big believers in power generation, because of the current power shortage, when it comes to power-sector focussed lenders like PFC and REC, the call may be more complicated. "For a period of time, people used to say that the discoms are not in good financial shape and thus avoided them.” Naren said.

Both PFC and REC have run seen a remarkable run over the past year gaining 2x and 3x respectively and trade at dividend yields of 4.03 percent and 4.5 percent currently.  But while current opportunities are manifold, many analysts that Moneycontol have spoke to said that it may be difficult to sustain the high valuations in the long run, even if the segment continues to grow.  ICICI Prudential currently has over 15 power stocks across its portfolio in both power generation and lending space such as NTPC, NHPC, Power Grid, Tata Power, JSW Energy, NHPC etc.

Also read: Power On Fire: What’s fuelling the rally in energy stocks?

The veteran fund manager said, investing is a complicated activity, not just arithmetic. Thus, as an investor, one needs to sometimes disbelieve doubts and double down the position and sometimes, one needs to believe those doubts and act accordingly. “In 2020, most people said that the power sector is gone…you need to look at assumptions and estimates and take a call.”

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