PSUs buck market trend, zoom up to 10%, analysts see valuations still cheap for some stocks

Government's infrastructure and capex push ahead and the general elections scheduled for May 2024 is one key reason for the rally in PSU stocks, said Narendra Solanki of Anand Rathi Shares and Stock Brokers

Stocks of public sector undertakings (PSU) rallied on January 17 even as the Sensex crashed 1,000 points and Nifty 300 points to fall below 22,000 points. The BSE PSU index was holding gains in early morning trade, and stocks of several state-run companies bucked the market trend to gain up to 10 percent.

Anticipation of the BJP's possible re-election this year is fostering hopes of for continued capital expenditure, enhancing the appeal of PSU stocks.

This sentiment was boosted further by a stellar performance of the BSE PSU index. So far this year, the index has risen nearly 4 percent, outperforming the benchmark Sensex, which has fallen 0.75 percent during the period.

In the year gone by, the BSE PSU Index surged 55 percent. In comparison, the Sensex gave a return of 18.74 percent.

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"The PSU stocks have been in the limelight over the last few years. We believe that the government's infrastructure and capex push ahead and the general elections scheduled for May 2024 is one key reason for such a rally," said Narendra Solanki, head of fundamental research in investment services at Anand Rathi Shares and Stock Brokers.

"Moreover, valuations for some of the PSU stocks still look extremely cheap. A combination of all these factors and business profitability continues to push the PSU sentiments. Investors should remain invested in PSU companies who have a good track record of healthy operations and financial performance," he said.

Cochin Shipyard zoomed over 10 percent and BHEL jumped over 4 percent to hit fresh 52-week highs of Rs 880 and 212.35 on the NSE. Shares of Hudco, General Insurance, Bharat Dynamics, Mazagon Dock, New India Assurance Company (NIACL), NLC India, NHPC, Mishra Dhatu, SJVN rallied up to 4 percent.

Also read | Mazagon Dock, IRFC, RVNL touch new highs; up to 12% rally in PSU stocks

Railway stocks like IFRC, Ircon International, RITES, RVNL also rallied to fresh record highs on January 17. The strong rally in PSU stocks mirrors their impressive performance and investor confidence, showcasing their appeal to market participants.

PSU valuations have experienced a substantial surge in recent months, with many trading at a notable premium compared to private sector counterparts, said Palka Arora Chopra, Director, Master Capital Services.

Notably, Life Insurance Corporation of India (LIC) has seen a remarkable 9 percent stock rally in the past week, solidifying its position as India's most valued PSU stock.

Public sector banks have outperformed their private counterparts, rallying over 60 percent in the last 12 months, and their valuations remain reassuring. The government's efforts to enhance accountability in PSU companies have attracted market participants and investors, recognizing the growth potential in these firms. "The public sector plays a crucial role in India's GDP, fostering investment, capital generation, and economic growth through infrastructure development," said Chopra.

Technical view

Public Sector Undertaking (PSU) stocks have witnessed a strong upward trajectory, driven by compelling factors such as attractive valuations, a robust order book, and the government's strategic initiative to increase capital expenditure in key sectors including infrastructure, railways, and defence.

"The recent correctional fall in the market does not appear to signal broader economic concerns that could impede the sustained success of PSU stocks," said Palka Arora Chopra.

Investors should gradually start investing in fundamentally strong stocks, and start booking profits in stocks that have experienced gains during the market rally. "The majority of heavyweight PSUs continue to trade above their short-term moving averages, underscoring their resilience amidst market fluctuations. We believe the correctional dip should be viewed as a potential entry point rather than a cause for undue concern," he added.

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