The overall high valuations of the market is creeping into PSU stocks too. If the markets correct significantly, there can be steep corrections in PSU stocks that are highly valued, says V K, Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Many defence related PSU stocks like ship builders have run up too much too fast on order bookings and Make In India theme, he said. Insurance stocks like LIC have recovered from their beaten down valuations.
There is a positive sentiment for PSU stocks now. Some PSU segments are doing very well like PSU banks where the turnaround is sharp. PSU banks which reported losses of Rs 87000 crore in FY 2018 will be making estimated profits of around Rs 1.3 lakh crore in FY24. Even after the run-up in prices, PSU banks are fairly valued, he added.
There has been no meaningful Institutional crowding in PSU names in this cycle, barring few names. PSU rally seems to have been driven by retail investors, foreign brokerage, Bernstein said in a report.
Foreign Institutional Investors (FIIs) have always preferred private companies (20.5% now vs. 10 year average of 21.5%) over PSUs (9.3% now vs. 10 year average of 9.8%) and there hasn’t been any shift in this preference in current cycle.
Domestic Institutional investors tend to own more PSUs compared to FIIs, however, they have been reducing their ownership in PSU names (13.7% now vs. 10 year average of 14.6%) and increasing in non-PSU (15.7% now vs. 10 year average of 12.8%) over the last year, the report said.
India PSUs (Public Sector Undertakings) have been on a roll, with BSE PSU Index up 21% YTD and +279% since October 2020 when it started outperforming the broader market after almost a decade of underperformance, the report said.