“There is a significant likelihood that the government may seek to raise funds by diluting its stakes in certain PSUs (public sector units), which could exert downward pressure on their prices,” mentioned Sunil Damania, chief funding officer, MojoPMS.
PSU stocks gained additional after the ballot outcomes on optimism that continuation of the federal government’s insurance policies would profit these firms. Since July 1, shares of Rail Vikas, Indian Renewable, Shipping Corporation, Mazagon Dock, Oil India, Railtel Corp. and Cochin Shipyard have rallied between 25% and 50%.
As of March 31, the federal government held greater than 75% in about 10 listed firms, together with Life Insurance Corp. of India (LIC), IRFC, Uco Bank amongst others.
Min Public Shareholding Norms
Some of those different listed corporations are Indian Overseas Bank, Mazagon Dock, Fertilisers and Chemicals Travancore (FACT) and General Insurance Corp. Under the minimal public shareholding rule, promoters should not maintain greater than 75% of an organization. According to ETIG estimates, the federal government might earn not less than ₹2.9 lakh crore if it offloads shares to satisfy this threshold.
Sebi has given LIC time till May 2027 to realize a ten% public float first. The public holding in 5 out of 12 public sector banks is still beneath the 25% mark. The present deadline for these lenders to satisfy the minimal public shareholding is August 2024.
To make sure, the federal government hasn’t precisely been hustling to satisfy assetsale targets. Last 12 months’s price range had set a disinvestment goal of ₹51,000 crore, which was later diminished to ₹30,000 crore. The rally in PSU shares prior to now 12 months has been partly on account of the absence of presidency share gross sales, which might have led to a steady provide of paper and pus hed down costs.
Fund managers and analysts mentioned valuations of many of those shares are wealthy after the current surge.“Many PSUs have become momentum stocks which speculators excessively trade,” mentioned VK Vijayakumar, chief funding strategist, Geojit Financial Services. “Even though the prospects for these segments look bright for many years, there is no valuation comfort in these segments as many of them have already discounted the earnings for a few years.”
PSU stocks like Bharat Heavy Electricals (BHEL), FACT, Hindustan Copper, Mishra Dhatu Nigam and Railtel Corp., amongst others, are tra ding at price-to-earnings (PE) ratio —a widely-used valuation measure —of over 100. The Nifty is buying and selling at a PE ratio of round 22 occasions.
Rich Valuations
“Despite the stable business outlook for numerous PSU companies, the potential for further price appreciation is constrained by these rich valuations,” mentioned Damania.
Retail traders may gain advantage from the rally by means of the Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) fairly than chase momentum, mentioned Gaurav Dua, head, capital market technique, Sharekhan.
“We believe that many PSU engineering stocks and PSU banks stocks have run ahead of fundamentals, and one needs to be very selective now,” he mentioned. “On the opposite hand, we still see worth in PSU energy and gas-related stocks.
