The ongoing rally in PSU stocks grabbed all the attention on Dalal Street in the current calendar year, thanks to attractive valuations and the government’s focus towards the sector. Data shows that six public state-owned companies grew by more than 100 per cent on a year-to-date (YTD) basis till December 2, while 23 firms advanced somewhere between 27 per cent and 90 per cent.
Mazagon Dock Shipbuilders was the top gainer in the list with a gain of 227 per cent. The company’s shares rose from Rs 278.90 on December 31 last year to Rs 914.10 on December 2, 2022. Bharat Dynamics, Hindustan Aeronautics, Rail Vikas Nigam, Bank of Baroda and Indian Bank also gained over 100 per cent during the same period.
So what keeps Speed upbeat?
Rahul Sharma, Market Strategist and Head of Research, Equity99 said, “Government’s resolve to increase local manufacturing through Production Linked (PLI) incentive supported the defense stocks. Higher spending on infrastructure and subsidy for fertilizers also kept the sentiment high for select PSU stocks. On the banking front, improving non-performing assets (NPAs), corporate loan book and operational performance are giving a big relief, leading to a healthy growth in the book count.
other top gainers
Union Bank of India (up 89 per cent), Cochin Shipyard (up 86 per cent), Bank of India (up 65 per cent), Rashtriya Chemicals and Fertilizers (up 62 per cent), Canara Bank (up 60 per cent), UCO Bank (up 56 per cent) Coal India (up 55 per cent), Bharat Heavy Electricals (up 54 per cent), Bharat Electronics (up 52 per cent) and Indian Railway Finance Corporation (up 51 per cent) were among others. Major gainers in the PSU space in 2022 till date.
Outlook
Going forward, market watchers believe that the upcoming budget will pave the way forward for the sector. Sharma of Equity99 believes that the defense sector still looks attractive. “Atmanirbhar in defence, which promotes local arms production and capital allocation for domestic procurement to boost the industry. Also, market sentiment is further improving this year with increased arms exports from India.
On the other hand, G Chokkalingam, Founder, Equinomics Research & Advisory, said, “2023 will be stock specific in the PSU space. Opportunities for development of specific business models and possible strategic sale of equity by the government will further propel the rally. For example, strategic sales of PSUs engaged in metals and logistics are likely to participate in the rally.
Some metal players including National Aluminium, Steel Authority of India and Hindustan Copper retreated between 4 per cent and 23 per cent YTD in 2022. On the other hand, oil and gas players such as BPCL, HPCL and Gujarat Gas also lost 12 per cent. percent, 21 percent, and 19 percent, respectively, by December 2 in 2022.
Chokkalingam is of the view that metal and logistics PSUs are yet to take part in the rally. “They look very attractive now. Most of the industrial houses are expanding their logistics business. They may like to acquire a substantial stake in these PSUs from the government. As the global economy looks to improve its growth from mid-2023, “Hopefully, the metals sector especially copper and aluminum may see a substantial correction in their prices by early next year. Hence, metal PSUs are looking attractive now.”
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