Stock market up almost 500 points amid strong global cues
After witnessing a decline of about 5 per cent over the previous five consecutive trading sessions, the domestic benchmark indices closed in green on Monday amid strong global cues.
The bets on public sector company (PSU) stocks are on high as the Mutual funds (MF) continued to load up on them in January.
This has led to pushing many of them to record highs, even as the market stayed divided on valuations.
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In 2024 so far, the BSE PSU index has rallied 18 per cent, compared to a 1 per cent gain in the Nifty. Last year, too, PSUs had outperformed the Nifty by a wide margin of 55.3 per cent as against 20 per cent.
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In January, the MF holdings in public sector firms scaled a record high of 7.58 per cent of total assets under management in January, up from 5.72 per cent a year ago and 7.24 per cent last month.
As per the Prime database data, there were 769 schemes across 41 mutual funds investing in PSU stocks in January, compared to 692 schemes and 37 mutual funds a year ago. In January 2018, MFs invested in only 45 listed PSUs and the number has shot up to 71.
According to global brokerage Jefferies, the rally in PSU stocks was due to earnings per share (EPS) upgrades and return on equity (RoE) improvement. Despite outperformance, the PSU Index price earning multiple of at 12.1x is at a 40 per cent discount to the Nifty, currently at 22.3x.
Amid the pandemic, in May 2020, the value of MF holdings in PSUs hit a low of Rs 1 lakh crore.
The market value of MF holding in PSUs surged, exceeding to Rs 4 lakh crore in January from Rs 2.33 lakh crore a year ago and Rs 3.7 lakh crore last month.
Increased capex spending by the government has helped boost the earnings of PSU companies in sectors including power, defence, engineering and railways.
The PSU banks look cheaper now compared to their private counterparts because of the improvement in asset quality.
SBI, NTPC, Coal India, Power Grid, ONGC, Power Finance Corp, and REC remained the top picks for the PSU stocks for Mutual Funds.
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