Top PSU shares in August: PSU stock indices set to outperform Sensex, Nifty; will the rally sustain?

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Updated: Aug 28, 2020 2:08 PM

With the broad based rally in the stock markets helping lift stocks across the board, Public Sector Enterprises also seems to be gaining momentum.

The pull back among PSU indices is taking place on the beaten down levels.

With the broad based rally in the stock markets helping lift stocks across the board, Public Sector Enterprises also seems to be gaining momentum. In the month of August, the BSE PSU index has gained 8.52% so far while the benchmark Sensex surged 4.7%. On the Nifty, the PSE index has managed to surge 6.7% while the 50-stock Nifty has gained 4.9% in the same period. Although no concrete reason seems to be aiding the bullish sentiment that the PSU indices are witnessing, analysts say stock specific movement and their cheaper valuations could be helping.

Some of the top performing PSU stocks in the month of August include, NMDC which has jumped 27% in August, SAIL with its 21% upward march, and Power Finance Corporation (PFC) that has gained 23% so far this month. While NMDC gained 12% on Friday on the back of the iron and steel plant demerger, PFC has seen easing of norms that allows it to extend loans to discoms above the already approved limit. In the Banking space State Bank of India’s shares have gained 18% so far in the month of August. “Some of the PSU power stocks have also seen smart uptick in the last two weeks after NTPC reported good numbers. Potential strategic divestment in BPCL has led to re-rating in many similar PSU stocks where there could be some strategic divestment in future,” said Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities.

“PSU Stocks were underperforming hugely, when the markets were weak it was the PSU stocks that were some of the worst performers,” Vinod Nair, Head of Research, Geojit Financial Services told Financial Express Online. He added that the stock markets are witnessing strong movement in small and midcap stocks which is also helping PSU stocks come in line with the broader markets.

PSUs have grossly underperformed the market in the last two years due to regular supply of shares by way of Follow-on public offering, Rusmik Oza added. However, the recent push towards ‘Atmanirbhar Bharat’ has helped PSU stocks gain on the bourses and has possibly led to re-rating. The import embargo on defence products helped lift defence sector enterprises like BHEL, BEML, HAL, and Bharat dynamics surge higher. With a number of new measures likely to be announced market participants believe that government owned companies on the stock market could be the biggest beneficiaries. “If ‘Atmanirbhar Bharat’ is taken up sincerely, PSU stocks could be the first to benefit and could witness strong demand,” said Vishal Wagh, Research Head, Bonanza Portfolios. 

Talking particularly about public sector lenders, Vinod Nair, added that the public sector banks are nearing the end of their consolidation phase. “Of Course they (PSU Banks) continue to be risky when compared to their private peers, but they can be considered. If consolidation is done right then these banks could provide investors with fair opportunities. and on top of that valuations are cheap,” he added while picking State Bank of India and Bank Of Baroda as his top bets. Vishal Wagh on the other hand has BHEL in his sights with a multi-year long term view.

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