The shares of state-run firms have emerged as a major source of wealth destruction for investors in the last five years, with with 6 out of the top 10 duds being PSUs, according to a study. We take a closer look.
The shares of state-run firms have emerged as a major source of wealth destruction for investors in the last five years, with with 6 out of the top 10 duds being PSUs, according to a study. According to Motilal Oswal’s 23rd Wealth Creation study, top 10 laggards including PSU stocks ONGC and Punjab National Bank have destroyed wealth to the tune of Rs 4.9 trillion, 11% of the total wealth created by top 100 companies. ONGC, Coal India, Punjab National Bank, BHEL, MMTC and Bank of India were the six PSU wealth destroyers among the top 10.
Top 10 wealth destroyers
Shares of state-run oil major ONGC have emerged as the biggest wealth destroyers, with investors losing over Rs 384 billion in the last 5 years alone. After ONGC, Bank of India came second, destroying Rs 180 billion in the last 5 years alone. Coal India (Rs 156 bn destroyed), Idea Cellular (Rs 151 bn destroyed), Punjab National Bank (Rs 146 bn destroyed) were among the top 5 wealth destroyers. MMTC, IDFC, Wockhardt, BHEL and Jindal Steel were ranked in the top 10 list.
According to the study, it is best for investors to avoid cyclical stocks, as they are a major source of wealth destruction. “For the past several studies, Wealth Destruction has been dominated by cyclical sectors – Metals/Mining, Construction, Real Estate, Capital Goods, etc. Sure, stocks in these sectors may turn Wealth Creators someday. But still, timing one’s entry and exit in cyclicals is crucial.
Considering the difficulty in achieving this, perhaps cyclicals are best avoided altogether,” Motilal Oswal noted in the report. Thanks to buoyant markets, especially mid- and small-caps, both the quantum and the percentage of Wealth Destroyed in the last two studies are much lower than in the previous two studies, noted the report.