Madhu Kela’s top three bets: PSU banks, pharma, tourism stocks

Apart from PSU banks, Kela is looking at some public-sector oil companies which are attractively valued

Public sector banks are trading at lower P/E compared to other public sector companies and can potentially rally further, said Veteran investor Madhusudan Kela in an exclusive interview with Moneycontrol post-budget.

In the last three years, the PSU Bank sector has outperformed private sector peers by a significant margin. “The market has been saying that public sector banks are overvalued.  Actually, but a lot of public sector companies are trading at over 30-40 P/E while public sector banks are still trading at single digit P/E if a two-year forward view is taken,” added Kela.

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Banking stocks rose after Finance Minister Nirmala Sitharaman unveiled the Budget for the upcoming fiscal on February 1. The surge was backed by PSU Bank stocks, with Bank of India, Punjab & Sind Bank, UCO Bank and Canara Bank rising up to 7 percent post-budget. Nifty PSU Bank index closed 3.11 percent higher.

“All the worries related to public sector banks regarding governance, technology and credit costs have diminished as they have become as good as any other private bank. So there is still some way ahead for PSBs,” Kela said.

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Apart from PSU banks, Kela is looking at some public-sector oil companies which are attractively valued. However, he is not so bullish on railway stocks. “At the current levels, I am not comfortable investing in railway stocks,” he said.

He further believes that the tourism sector has tremendous potential, specifically religious tourism, whether it's Ayodhya, Ujjain or Vaishno Devi. “There might be some hidden jewels on the tourism side,” Kela said.

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Another sector Kela said he is bullish on over the medium-term is pharma stocks. “The world has seen our capability during the COVID-19 pandemic, we came out with a vaccine in just a 12-18 month period. It’s a large basket, there are individual companies where money will be made,” said Kela.

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