Analysts bet on PSU stocks
Improving biz prospects, disinvestment buzz key triggers
Stocks of public sector companies, especially oil marketing companies (OMCS) – Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL), and Indian Oil Corporation (IOC) – logged gains on Tuesday in a weak market.
The Nifty lost nearly 1 per cent intraday on Tuesday before it recouped some losses to close the session with a decline of 0.6 per cent. However, the Nifty CPSE index – a gauge of performance of central public sector enterprises – gained 3.24 per cent.
The rally in PSU stocks comes on the back of the BPCL Chairman Arun Kumar Singh suggesting in the company’s annual general meeting on Monday that the government intends to complete the divestment process in the OMC by March 2022.
Apart from divestment, there are several stories playing out simultaneously in the PSU space and one cannot paint the entire sector with the same brush, said A K Prabhakar, head of research at IDBI Capital. Business prospects, according to him, are improving across the PSU landscape.
“There is a shortage of coal, which is propelling the Coal India stock. Similarly, IRCTC is doing well on the prospects of the economy opening up and sharing a split plan.
Similarly, firm gas prices augur well for gas producers. Several state-owned chemical companies are performing as the chemical prices are soaring. What BPCL has said is not new. This has been in the public domain. However, the government now needs to walk the talk and execute the plans,” he said.
Besides BPCL, the government intends to privatise two public sector banks (PSBS) and one general insurance company in financial year 2021-22 (FY22) and aims to raise ~1.75 trillion in the process.
That apart, it has proposed to offload its stake in Life Insurance Corporation of India (LIC) through an initial public offering this fiscal, preparations for which are already underway. In the last 10 years, though PSU stocks have gained ground, they have mostly been laggards on the bourses. Sample this: The S&P BSE PSU Index has moved up just 7 per cent in the last 10 years as compared to 253 per cent rise in the S&P BSE Sensex, 304 per cent rally in the S&P BSE Midcap index and 298 per cent gain in the S&P BSE Smallcap index, ACE Equity data show.
That said, selling stake in government-controlled enterprises, analysts say, will be an uphill task as there are too many moving parts in the process. Delaying it into the second half is a risk to the overall fiscal situation as well.
“As things stand, achieving the divestment target of ~1.75 trillion this fiscal looks an uphill task as we are already in the second half of the fiscal (FY22). After a shortfall last year due to Covid, the government may not like to put the fiscal situation at risk again. That said, if the government wants to push it, now is the time. It does have some leeway to manage the fiscal situation in terms of the tax collections, which are likely to remain strong over the next few months as well,” said Yuvika Singhal, economist, Quanteco Research.
As regards PSU stocks, G Chokkalingam, founder and chief investment officer (CIO) at Equinomics Research, suggests that investors start accumulating PSU stocks from a medium-to-long-term horizon. “A number of these stocks had been beaten down badly over the past few years. Improving business prospects and divestment hope will keep them buzzing for some more time,” he says.