The PSU stocks despite recent gains are trading at low valuation, Sridhar Sivaram, Investment Director, Enam Holdings, has said, adding the business model of these government-owned companies has changed for the better.
“In the last three years, the best-performing sector is PSUs which have a return of 50 percent CAGR. PSU banks are also giving 50 percent CAGR. When I look at some of the banks now even after going four times, they are trading at 5 P/E, 6 P/E. You can still argue that it can double from here and still you can justify the value,” Sivaram told CNBC-TV18 in an interview.
The BSE PSU index has rallied 43 percent this year and the index is trading at a PE of 9.12.
The governance and business model of these firms had changed and they don’t have the stress from the government that they have to be profitable. “Barring a few segments where they have their issues, the entire PSU basket is worth watching,” he added.
There is a change in regime from high PE stocks to value stocks now and the value stocks had started giving returns.
“Every decade there is a regime. If you go back to the previous decade, the regime was high growth and high PE stocks. That extended to such an extent, it was just high P. The E disappeared at some point of time. I think the regime has changed again. Something happened post-2021 and the market has gravitated towards value and fortunately these value stocks have started giving earnings now,” Sivaram said.
Bullish on private banks
Private banks were also set to perform after the recent slump, Sivaram said.
“We are bullish on the private sector. They’ve had some challenges because of how the interest rates moved and deposit costs have gone up. The RBI has been tightening liquidity as well,” he said.
Some of the private banks managed these risks for many years now. Their underperformance was for the right reason but when the foreign institutional investors (FIIs) come back — there were early signs of it — it would become an easier segment to enter. "So I’m quite bullish on this segment,” Sivaram added.
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